Forget overarching principles and cross cutting rules and other Financial Conduct Authority jargon.
By all means skim the 161 page Policy Statement PS22/9 and the121 page non-Handbook Guidance FG22/5 published at the end of July.
But all you really need to do is put your self in your customers’ shoes and think ‘would I like to be treated like this?’
If the answer is ‘no’ then it does not pass the Consumer Duty test.
Here are just a few ways that no customer or even you would like to be treated.
Restricted advice
No-one would choose restricted advice confined to the products created by the advice firm or its network or a panel of firms.
My view is that only independent financial advice can meet the Consumer Duty.
But if you believe restricted advice can do so then call it restricted advice.
Right up front. On your brochures and websites.
Or to be really honest call it sales. Because that is what it is.
The FCA says communications should “equip customers with the right information, at the right time, to understand the product or service in question and make effective decisions.”
They need to know.
Wealth tax
Hands up if you charge your customers a percentage of the money you invest for them which normally you like to call their wealth.
If your hand is up that means the other is in their pocket taking their money.
Even the Government does not charge a wealth tax on the living. And given the choice no one would agree to pay one.
So charge a fee in pounds like any other profession.
If a client prefers 1% a year to a £1,450 fee it is either because 1% sounds so much smaller or they can’t work out that if they have £250,000 after seven months it is the same.
Website
Where are your charges on your website? Are they on the first screen or buried away in ‘About Us’?
Or do you believe that putting them on the website would just confuse customers? Or perhaps you shop so often in London’s Bond Street you have never seen goods with prices on?
To fulfil the Consumer Duty put them on page 1.
Active management
Every serious study of fund management has found that in the long-term passive funds give better returns to investors than active ones both in good times and bad.
So how can you justify even for a nanosecond never mind 20 years selling an active fund where charges are higher and performance is worse?
The Consumer Duty would demand you explained all that. And then who would buy them? So just stop selling them now.
Cash accounts
Most people would like some money in cash and most advisers would recommend that.
And remember if you quote cash returns in real terms after inflation, then to fit in with your Consumer Duty, you must also deflate investment returns.
Remember that cash funds are not cash. A cash fund is more like Liza’s bucket than a savings account.
Cash can now easily earn over 3% a year risk free.
Cash funds generally lose money after charges. If you must sell them at least explain that.
Charges
It is still ridiculously difficult to find out what the total charges taken from an investment are.
Just tell the truth, the whole truth and nothing but the truth.
Like this: If you invest £100,000 as we recommend then you will pay a total of xxx every year for all the various costs and charges some of which goes to us and some to other people.
Your investment will have to produce a return of x% a year just to pay these charges.
After that the money is yours. Unless you want to take it out when we will charge you another y%.
If the shoe fits
Just six of my hobby-horses and their uncomfortable shoes to stand in.
If you tell clients the whole truth plainly you won’t go far wrong with your Consumer Duty.
Much better than scouring those 282 pages for loopholes to let you carry on as before.
Paul Lewis is a financial journalist and host of Radio 4’s Money Box
I didn’t really understand Paul’s point about charges.
His wording is pretty much what we have to say in Suitability Letter, Aggregate Charges, table. Which is repeated clearly in the Quarterly valuation our preferred platform sends the clients.
Basically Paul’s request is already the law.
I don’t know many IFAs who use cash FUNDS. We have money held in cash for 6 months income etc but it’s held in cash, not funds.
I’ve checked my accountants website. There’s no mention of their fees. If I were a new client, I guess I’d phone up, and discuss them. Not a problem to me.
As for % charging, that’s what the FCA do, it’s what the FSCS does, and unit trust companies, and many probate managers, and how VAT works, and income tax etc.
I don’t see why it matters how the fees are created. What matters is if the client genuinely understands them beforehand and agrees to them. And can stop them going forward. Oh, and no exit penalties years after investing….
Charging a % for tax works because the government INTENDS it to be PROGRESSIVE, i.e. the more you earn the more tax you pay. So, the question is do you INTEND your fees to be PROGRESSIVE? Can you justify charging clients with say, a £500k portfolio considerably more than you do those that only have say, £100k? Do you really do more work or incur more liabilities? If you do then that’s fine. If you don’t then there’s a cross-subsidy going on which isn’t going to be fair on someone!
Spot on Paul ..
I only had to look at your statement ..
“But all you really need to do is put your self in your customers’ shoes and think ‘would I like to be treated like this?’”
You should have ended the article there… but no; you proceed to mud sling, pronounce your way is the right way, its all so simple, back track on old arguments and bias !!
Then mull over your opening, your opening statement…
“Forget overarching principles and cross cutting rules and other Financial Conduct Authority jargon.”
We all know and hopefully even you as a journalist will know we cannot ignore, side step or forget this …so ?
You are in a mindset of one, as every single person or client wants and needs different things to their own bespoke circumstances… sheep penning or second guessing peoples, wants, aims and goals is pure arrogance and mum knows best !!
Its a real shame that the FCA and you as a journalist believe you are right, fit and proper to preside over a industry telling them that after many years of practical working knowledge, experience and examinations …. they are in fact either wrong or interpret incorrectly !!
Simply put, I would have to answer no ..to your statement referred to in the opening of my post..
By choice I would never treat my clients the way I have too, under the rules and guidance we have at the moment.
To have a real understanding can I suggest ..
You train, take exams, get registered with the FCA go through all the hoop’s and expense then after, say after 5 years top up your clients stocks and shares ISA or pension, better still set up a regular premium pension !!
Then tell me, WHO should have a real understanding of “Consumer Duty”
I couldn’t have put it better myself!
I seem to recall a podcast in the last few years, (with Abraham Okusanya I think), where Paul Lewis said he had just invested in some Investment Trusts – would they be passive? Also, if everyone invested passively, markets wouldn’t function properly.
To the wider point, I have no doubt that it will all move in Paul’s preferred direction in the years to come – although if we are going for total ‘fee purity’ Paul then surely it should only be time-costed/hourly-based fees, remitted directly from the clients’ bank account, rather than from out the back of the platform/product? The problem is that when we finally achieve Paul’s utopian vision, there will be hardly anyone left who can afford to pay for financial advice. It will then all have to be down to the State to sort out – but I think that is exactly how Paul wants it.
ALL financial advice firms are restricted to one extent or another. It’s just a matter of degree.
Our fees are completely transparent and spelt out in pounds and pence as the regulator mandates. I know nobody who only quotes percentages. Why do we prefer payment from the product via the platform? Because it obviates credit control, simple as. Make credit control a problem Paul, and fees will go up, guaranteed.
I know this Paul because I’ve worked in industries other than financial services. Have you ever worked in anything else apart from journalism and pontification?
In almost every paragraph Paul Lewis has something confused or wrong in this weak article.
1.Tell the FCA to insist that ‘restricted’ advice needs to be made crystal clear on websites etc.. Not IFA’s who cannot do anything about this.
2. ‘Wealth tax’, where to start… the pitiful ‘pickpocket’ comment… Charges pay for the services we provide to our clients, Mr Lewis. They are clearly set out in suitability letters provided to clients prior to them deciding to proceed with advice.
3. Do solicitors or accountants post their charges on their website? No.
Professional fees are agreed between the professional and their client. All fees are fully disclosed in writing prior to client proceeding with advice.
4.IFA’s don’t ‘sell’ active passive or any funds. They justify to their clients why they recommend an active, passive or DFM investment.
5.Cash. I generally advise clients to manage their own cash at Bank/BS. Not in portfolios.
Show me where ‘easily over 3%’ is available on 1 year basis, Mr Lewis. BTW cash is not risk free at 3% interest rate, with inflation at 9%+.
6. There needs to be a Consumer Duty’ for journalists, requiring them not to present one sided, biased, ill informed and incorrect information to their readers.
If that were the case, Mr Lewis along with many other journos, would swiftly be out of a job.
In the Times there was a half page article with a dozen things self investors should not do such as follow social media, keep switching, checking performance each day. 12 things which people do too often. IFAs through ongoing fees and reviews prevent their clients doing these bad things. Look it up, it is an article that can be a sales tool for ongoing reviews.
By the way, you do not know the cost of advice BEFORE you start work. Rory Percival never got this either. Clients must shop around. Sometimes simple wishes become complex needs and more time is required.
As always Paul makes some interesting comments. You should only pay for what you want or need. That is why I oppose to the Universal BBC licence fee that charges the same fees despite varying degrees of usage. Also, the BBC pay journalists huge salaries and consumers have to pay whether they like it or not.
Whilst the FCA continue to charge a percentage of turnover to firms, with no guarantee that they will not ask for more the following year, Advisors need to ensure that they provide a great experience that clients want to pay for in pounds. The percentage debate is dead in my opinion. Allow clients to get the service that they want and allow them to walk away without penalty if they no longer wish to stay as clients. Any business that charges exit fees should be banned, whether IFA or tied /restricted.
Most people don’t like to be lectured on what to do with their money and prefer choice. Nobody should tell you what car to drive either. Buying expensive cars might be stupid but if people want to buy them, allow them.
We don’t need a nanny state and choice is key. There will always be clients that want to do things for themselves so go for a self managed service. Only pay for advice if you think you will benefit from the service on offer.
The best piece of advice a client gave me was to ensure that I made a profit running my business. When I asked why he was concerned about me making a profit, he said: “because if you don’t you won’t be around to help me in the future.”
A good business will therefore prosper long term by doing the right thing for the client. It doesn’t matter if you are dealing with your own money, relatives or clients, good service has to be paid for. It costs. Therefore factor in these costs and do what is best for your needs.
Good to debate these issues. The more transparancy on fees the better…unless you have something to hide! 😉
Fees are only part of it if you want to put yourself into the clients’ shoes. The other important element is ‘skin in the game’. Do you personally own and do what you advise your clients to do and purchase? That really sorts the men from the boys. How can you be an adviser, wealth manager, or planner if you are impecunious? Sharing the joy (or the pain) sheds a somewhat more intense light on the process.
I actually worry about Paul. This is an incoherent ramble with zero understanding or insight.