/ Regulation

Consumer Duty: 11 questions your implementation plan should try to answer

Come 1 November there will be two kinds of firms – those who have their Consumer Duty plans in place, and those who didn’t quite hit the deadline.

The FCA expects firms’ management teams (essentially, this is where the buck stops – for larger firms it will be the board) to have agreed their implementation plans by the end of October. It also expects firms to be able to show they have kicked the tyres on these plans: can you deliver them and are they robust?

So with the deadline fast approaching, if you haven’t yet got your plan in place, what do you need to be thinking about? And if you have started, what might you have missed?

Steps to take now

One of your first actions should be to appoint a Consumer Duty champion.

Initially the FCA’s guidance was that the champion should make sure the Duty is discussed regularly and raised in all relevant discussions, and that where possible the role should be filled by a non-executive director.

The regulator has recently given more information about how it expects the role to be filled.

The champion is expected to challenge firms on how they are embedding the Duty and focusing on consumer outcomes. But it’s not a prescribed responsibility under the Senior Managers & Certification Regime (SMCR), and the regulator isn’t being prescriptive about the role.

Firms have some wriggle room to set it up in such a way that fits with their existing boards – including, if you think it’s appropriate, having your chair as the champion.

Once you have your champion in place (and a highly unscientific show of hands at HomeGame 2 suggests there are a substantial number of firms who haven’t yet), the FCA has helpfully provided a list of questions it wants to know the answers to, and thinks you should too.

Culture and governance

  • Does your firm’s purpose align with its obligations under the Duty?
  • Does everyone in the firm understand that?

Most if not all advice firms and financial planning practices should be able to confirm with an emphatic ‘yes’ that they are there to ensure good client outcomes.

That being the case, you can move on to showing how this is embedded in your processes, such as strategy, training, pay and incentive structures. Also:

  • Are your staff able to challenge where they think the firm isn’t delivering?

Products and services

The key concept here is showing your client segmentation.

  • Can you show you’ve specified your target market, in what the FCA refers to as “the degree of granularity necessary”?

For example:

‘People over the age of 18 who might want to invest something’ is a segmentation of sorts, but not a good one – can you show you have done better?

Once you’ve identified your target market, the next question to ask yourself is:

  • How are you checking your services and products are, and continue to be, appropriate?

This would include any comparison and benchmarking services you use to do this.

The FCA wants to see how you consider any clients that might find themselves in vulnerable circumstances, either temporarily or on an ongoing basis.

And it’s not just your data that you need to be looking at – are you sharing all necessary information with other firms such as the providers and platforms you work with, and receiving all necessary information yourself?

Remember, if you spot an issue with another firm breaching the Duty, you have an obligation under SMCR to report this.

Price and value

  • Can you demonstrate your products and services are fair value?

This includes all relevant costs and charges the client is likely to incur.

You also need to demonstrate you are monitoring and reviewing fair value on an ongoing basis and, if necessary, taking action. For example, have you benchmarked price and value against similar services to your’s?

To be clear, this doesn’t mean you have to offer the cheapest service or recommend the cheapest products. If you offer something your clients value and are willing to pay more for, then if you can show that, you’re meeting the requirements of the duty. Which leads us seamlessly to:

Consumer understanding

The FCA renamed this outcome ‘consumer understanding’, rather than ‘consumer communications’. This is to emphasise it isn’t just about disclosure and documentation, but the whole process of engagement throughout the client journey. So the questions to ask here are:

  • Do people have the right information at the right time to make decisions?
  • How are you testing your communications, especially when a decision has to be made?

If your value for money calculations show that your clients really understand they’re paying extra for your particular expertise, qualifications and skills, can you provide evidence of that?

And if you use a range of communication channels, are they all equally effective, or are clients who phone up getting a better service than those who email, or vice versa?

Consumer support

By this point you have an implementation plan that shows you have a Consumer Duty-friendly purpose, your staff all understand this, you offer fair value and your clients are empowered to make decisions.

This leaves us with one final outcome – consumer support. Consumer support is all about fairness. One key question here is:

  • Is your support meeting clients’ needs throughout the process?

Many advisers and planners pride themselves on their client retention and their ongoing service.

It’s important to demonstrate this, and to show you provide a quality of post-sale or ongoing support that’s as good as your new client process. For providers, this means it should be at least as easy to switch or leave your products as it was to take them on in the first place. The same can be said for advisers.

Having looked at that, it’s worth asking:

  • How effective is your monitoring of any outsourced or third-party providers?
  • Are they meeting your standards, and how often do you check?

These questions and headings give an overview of what should be in your implementation plan.

There’s plenty more in the guidance published by the FCA in July, and many more questions.

You don’t need to have the answers to all the questions by the end of October. But if you want to be on the side of the angels, it’s worth being able to show you’ve given them some thought.

Alison Gay is senior public affairs consultant at the lang cat

P.S. For some of these questions, like suitability, target market and whether providers are meeting your standards, we have a system that can help with that. To see how Analyser can support you in your due diligence, visit our Analyser site for more info.

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