The first anniversary of the Financial Conduct Authority’s Consumer Duty attracted bucketloads of commentary, most of it positive.
The new regulatory framework, we are told, has reinvigorated the sector, encouraging firms to operate more efficiently and professionally.
Service levels have improved and advisers are demanding higher standards from their providers, fostering more competition.
The duty has not led to an exodus of advisers, says Richards. The bigger issue is an ageing workforce
Moreover, the focus on delivering good client outcomes and prioritising client welfare is universally supported by the industry, backed up by surprisingly robust enforcement from the FCA. These reforms are here to stay.
So, an unambiguous triumph? Well, yes and no. The regulations have provoked grumbles as well as cheers from certain quarters. The Consumer Duty, critics claim, is burdensome, bureaucratic and costly — at best unnecessary, at worst actively harmful.
Certain things always follow from changes to established norms. First, nobody really likes it, especially at the start. Second, there are always unintended consequences. Finally, it takes a while for any benefits to accrue — so, evaluating the success of the Consumer Duty may be premature.
Negativity
But, in terms of who likes the reforms, there has clearly been some negativity from clients and advisers. A study by Smart Money People showed 84% of clients reported no improvement in how providers treated them, with 7% reporting worsening service.
The focus on delivering good client outcomes and prioritising client welfare is universally supported by the industry. These reforms are here to stay
Clients also complained about the lack of access to human support (48%), untrained staff (34%) and over-reliance on chatbots (24%), suggesting a disconnect between service providers and consumer needs. This is particularly true for vulnerable clients, 81% of whom reported no positive change.
If one purpose of the duty is to provide a more personalised client service, there’s clearly work to be done. Nor is it encouraging that only 23% of clients have left a review for their provider in the past year, as firms lack meaningful feedback on which to build.
As for advisers, adapting to the new regulations has not been cost free. Research by Dynamic Planner, for instance, showed a 100% year-on-year increase in the number of adviser reports generated — a significant investment in time and resources.
A study by Smart Money People showed that 84% of clients reported no improvement in how providers treated them
A notable example is the price and value outcome. Ensuring that pricing structures deliver ‘fair value’ to clients is a notoriously complex task, and research suggests over two-thirds of advisers have struggled to implement it effectively.
Fears
Overall, there are fears that compliance demands will force more advisers out of the profession, widening the already considerable advice gap. But how realistic is this unforeseen consequence of the duty?
Delivering the best outcomes for clients has always been at the heart of good firms, but we need to test and evidence it, adds Richards
Consumer Duty Alliance chief executive Keith Richards believes critics are pointing in the wrong direction. The introduction of the duty has not led to an exodus of advisers, he says; in fact, numbers have slightly increased in the past 18 months. Instead, the bigger issue is an ageing adviser population.
“More than 50% of advisers are now over 60. Consolidation and succession planning have resulted in a reduction in the number of regulated advice firms, meaning exits are likely to follow over the next couple of years.
“All of this was in progress before any suggestion of the Consumer Duty.”
Richards also denies the increased costs of the duty have been passed onto clients. Instead, he says, most firms have absorbed them. In addition, the changes that have resulted — along with the better use and integration of technology — may reduce the cost of advice and services in the longer term.
The Consumer Duty, critics claim, is burdensome, bureaucratic and costly — at best unnecessary, at worst actively harmful
None of this gives room for complacency. Challenges remain, and service standards from providers have not always improved in line with expectations. But that’s no reason to make the perfect the enemy of the good.
“Change can often bring its share of concern and frustration,” concludes Richards.
“However, we are seeing a more positive picture emerge. Delivering the best outcomes for clients has always been at the heart of good firms… but we need to test and evidence it.”
Tom Browne is editor of Money Marketing
This article featured in the September 2024 edition of Money Marketing.
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To make sense of this, you have to set out what the Consumer Duty does.
It duplicates PROD 3 and 4 on product governance and so should only be waking up firms to what is already there. There is the addition of value measures for investments and investment-based insurance.
It provides some guidance on clear fair and not misleading.
It requires service standards for existing business to match those for new and to be generally acceptable.
Only the fourth is entirely new although value measures may be a fresh thing for IFAs who have never considered their value for money – the rest is just a question.
What has changed is that the regulator faced with widespread non-compliance in these areas is essentially asking people to document what they are doing to meet what are largely old requirements. In doing so, they hope that this will focus attention and stop them from having to discipline people.