Explaining Consumer Duty and how this enforces the benefits of independent advice

By May 31, 2023Financial Planning
Graphic of a series of cogs reading 'Rules', 'Standards', 'Policies', 'Regulations', and 'Compliance' - Explaining Consumer Duty

Firms have until 31st July 2023 to fully implement the Consumer Duty requirements for new and existing products and services. The Financial Conduct Authority (FCA) introduced the new requirements last year and undoubtedly these are significant pieces of regulation that aim to improve how firms serve their clients.

In recent years, the FCA has considered several provider services and products unfit for purpose because they fail to provide fair value, ongoing support or exploit customer loyalty. To combat this, the FCA’s Consumer Duty aims to create a significant shift in culture and behaviour to ensure all firms offer a higher standard of care for its clients.


Underpinning principles

The underpinning principles of the new regulations set out how the FCA expects firms to act. In essence, a firm must act to deliver good outcomes for retail clients by acting in good faith and supporting them in pursuit of their financial objectives. The FCA wants to see these new principles applied to products and services, price and value, consumer understanding and consumer support. When designing a product or service, providers should also avoid negative barriers and anything that could impact on a consumer experience such as exit penalties or unreasonable terms that may make it difficult for a client to move to an alternative provider in the future.


FAS Consumer Duty analysis

Whilst it may be labour intensive and somewhat consuming at times, we welcome any regulatory change that raises the bar within our industry, which has come a long way over the past 20+ years. Far too often, we still hear and read about poor consumer experiences where clients have perhaps been “sold” a dubious product or service, have been charged an extortionate fee or are continuing to pay for a service they do not receive.

At FAS, good client outcomes are at the core of our everyday operations, and we are confident that the depth of what we do here is way above the industry standard. So, we hope it will come as no surprise to you that having undertaken a fair assessment of the services we provide in line with the new Consumer Duty regulations, incorporating the Concepts Discretionary Managed Portfolio Service, it has been comfortably demonstrated that FAS does indeed provide fair value and good outcomes for its clients. Furthermore, we will be reviewing the services we provide each year to ensure that this continues.

As part of our Due Diligence, we will also be monitoring the platforms and product providers we recommend to our clients to make sure they too meet all the new Consumer Duty requirements for clients.


Independent v Restricted

As many of you will know, there are two types of financial adviser, an independent adviser and a restricted adviser. At FAS, we choose to be completely independent so that we can research and recommend financial products spanning the whole of the market. In doing so, our advice is unbiased and unrestricted which contrasts with a restricted firm where advisers are limited to certain products from certain providers. In some cases, restricted advisers can only recommend products from a single company, which in our opinion is not providing a comprehensive service to clients or good value.

We are very proud of our independence, and the ability to recommend the most appropriate product or service from across the marketplace helps us to achieve our aim of providing the best advice to clients. By being independent, we can also aim to provide good value for money, by being able to access potentially more cost-effective options from across the industry.


Client awareness of restrictions?

Consumer Duty throws a shadow over a restricted advice service, and we wonder how such firms are faring with this regulatory review. Consumer Duty requires firms to demonstrate that they are providing good outcomes for clients, and value for money. There is a greater emphasis on the need for clients to understand the precise nature of the service they are receiving so we would be interested to know what percentage of restricted advice clients truly understand the restrictions they are faced with and the impact these can have.

By not being able to select funds from across the marketplace, this can dampen investment returns from the chosen investment funds, as a single fund house or manager is unlikely to be “best of breed” in all areas of the market. We have undertaken own our analysis and research of fund performance of the in-house funds offered by firms offering a one-stop shop and discovered that in many cases fund performance over the long term can be disappointing. Also, despite the restricted nature of the advice, clients opting for a restricted service may not receive good value for money, as fund solutions and management fees may be higher than those charged by firms that are independent.

We believe Consumer Duty gives independent firms such as FAS a distinct advantage and as our day-to-day operations focus on providing a responsive, independent advice service, we feel confident that our business easily meets the requirements of the new regulations.

If you have any questions regarding our internal review or any other matter relating to your financial arrangements, please do get in touch here.