Consumer Duty - So Where Now?

Should anyone harbour doubts about the efficacy of the Financial Conduct Authority's Consumer Duty campaign, the recent surge of actions from Stratford has likely altered their perspective.With the impending annual review in just over 3 months, there is likely to be a flurry of expectations and themes, scrabbling out of the regulator's door. Notably, the "Dear CEO" letters distributed with our holiday greetings, decisive actions concerning issues such as exit fees and ongoing services, along with consistent articulations of policy directions, underscore the FCA's commitment to ensuring the Consumer Duty has a tangible impact. Dialogues with fellow financial planning entities reveal a general endorsement of the regulator's initiatives. Addressing those persistent areas of poor practices and consumer harm, which, if overlooked, would only tarnish our profession's standing, is indeed a crucial development. Historically, market practices objectionable to the regulator have somehow remained unnoticed. For an extended period, we've endured subpar service levels without intervention from the FCA.

A decade after the Retail Distribution Review (RDR), it's evident that Consumer Duty represents an improved sequel—RDR: The Revenge is manifestly in widespread circulation. The FCA's unambiguous intention to combat substandard practices led to the establishment of a whistleblower hotline, providing a new outlet for frustrated advisers previously resigned to silent observation.

The FCA's proactive stance prompts the question of where it should direct its focus next. I propose three areas: Firstly, the realm of legacy products, a sector to monitor closely as regulations for closed products will be enforced starting July. This sector is notorious for older, more expensive products persisting while newer, cost-effective alternatives are offered to new clients. These legacy products often carry fees three to four times higher than newer offerings. Notably, these are the clients who have borne these costs for 20-30 years, potentially justifying higher operational costs, yet the accumulated returns over the decades have substantially fueled the vitality of the life insurance industry.

Next, the issue of conflicts of interest and inducements remains unaddressed in the current regulatory framework. For instance, an advisory firm might tout exceptional value while its proprietary platform incurs costs double the market average, a clear conflict when this is the sole platform available to clients. Advisers endorsing such in-house solutions solely due to compensation models that reward asset conversion clearly contravene Consumer Duty principles and existing inducement and conduct regulations, yet these practices persist under the regulator's watch.

Lastly, the issue of service levels remains critical. The technological advances now available should enable swift pension transfers, yet they often extend over months. At times, fulfilling a simple data request can take up to 12 weeks. Poor service from providers to advisers significantly affects the clients we advocate for. Interestingly, suggesting as a client that you wish to transfer your pension prompts immediate provider action, yet advisers face service delays reminiscent of a famously lethargic character from a popular animated film. These prolonged service issues have persisted too long without FCA intervention.

As we anticipate the regulator's next moves, historical actions suggest a pattern of increased interventions and "Dear CEO" letters, with the hope of more robust actions to rectify the longstanding poor practices that undermine our industry's integrity.