Has Consumer Duty lived up to the cynics’ original billing as TCF on steroids? Or are we seeing a sea change among advisers?
Last summer, I made five predictions about its implementation. Three months into 2023, how did I fare with the crystal ball?
Prediction 1: There will be similar lessons to those from ‘assessments of value’ implementation
Rather like the assessments of value (AoV) reports in the asset management industry, which evolved based on best practice and a more prescribed approach from the regulator, I anticipated a similar change in the model portfolio market.
We haven’t seen this play out to date, as rules have not yet been prescribed. Perhaps it’s too early to expect this for both manufacturers and advisers, as the regulator focuses elsewhere on the implementation of the Duty.
Evidencing is crucial – ‘if it’s not written down, it didn’t happen’
As we approach the first anniversary, I still anticipate a review, beginning with documentation and when/how often should this be issued to the client.
Prediction 2: Advice businesses will be impacted
In the Schroders Adviser survey of May 2023, 39% of advisers indicated Consumer Duty would have little or no impact on their business. Post-implementation, in November 2023, we saw a significant swing in sentiment as advisers started to understand what was required. The percentage of advisers suggesting it would have little or no impact fell to 17% and the percentage saying it would have a high impact rose from 25% to 41%.
A high client retention rate doesn’t mean clients are happy with the value being delivered
We asked advisers what their top priority would be in relation to the implementation of the Duty in 2024. The ‘ongoing assessment of fair value using client feedback’ was the highest response. There have been endless debates on whether this is feasible given value can be deemed intangible.
However, all things point to a data driven regulator that will expect to see evidence in the form of MI that applies some form of measure. This leads neatly to my next point.
Prediction 3: Evidencing will improve
How does an adviser evidence value? We produced a whitepaper with Boring Money to address this challenge. Consumer research indicated both practical and emotional factors were drivers and the paper identified five key pillars of value with different weightings.
As we approach the first anniversary, I still anticipate a review
In priority order, these were: trust and peace of mind, planning, information, performance and fees. A questionnaire has now been produced to test these and is issued to clients post-annual review. The pilot has already identified situations where advisers have received unexpected feedback, often from long-standing clients. This has prompted them to engage with the client to understand the feedback in more depth and take remedial action.
A high client retention rate therefore doesn’t mean clients are happy with the value being delivered and I believe the regulator expects to see a robust process evidencing how this is being measured and addressed.
Prediction 4: Pressure on ongoing charging structures will remain
Back to the Schroders survey. In May 2023, 59% of advisers reported the fair value outcome would put pressure on ongoing charging structures. By November, this had risen to 69%. This topic has been on the regulator’s radar since it made the statement in 2020 that more than 90% of clients are placed in arrangements with ongoing advice charges and may be paying for services they do not need.
The regulator expects to see a robust process evidencing how this is being measured and addressed
It perhaps comes as no surprise it recently issued a questionnaire to 20 advice firms asking for data about clients who pay for an ongoing review service, whether this has been delivered and, if not, then whether clients have been refunded.
This exercise is likely to deliver interesting results and raise questions. What happened if several attempts are made to contact a client to get the review in place? What service did the client originally sign up to? How has the service proposition been defined and documented?
Back to point three, evidencing is crucial – ‘if it’s not written down, it didn’t happen’.
Prediction 5: Consumer understanding will improve
Advisers and product manufacturers have put significant effort, often with external support, into reviewing client documentation, video content and regular reports to assess how well these are understood by clients. This work is likely to be ongoing throughout 2024 and this testing of client understanding will become the norm in the sector.
Gillian Hepburn is commercial director at Benchmark Capital
