Navigating Consumer Duty: Insights from Industry Leaders

John Portius, Managing Director at Charles Stanley; Simon Weldon, Founder of Weldon's Wealth Management, and Russell Facer, CEO at 360 Services, delve into the intricacies of consumer duty . The experts share their perspectives on the codification of consumer duty and what it means for advisers, how to deal with vulnerable clients, and how to demonstrate value for money with products and services.

The Fluid Nature of Consumer Duty

Consumer Duty requirements have been in force for the best part of a year, and the demands ratchet up again at the end of July. During our conversions, the three industry experts discuss the lessons learned so far and give their thoughts on what to prepare for in the months ahead. But first, they began by outlining how consumer duty was perceived as principle-based regulation, allowing firms to define their standards of good practice. However, now, the approach has become more codified through various tools.?

As John Portius highlights, this shift is driven by the regulator's data-driven approach, expecting firms to use data in their business operations and regulatory engagements.

“Increasingly this codification will guide us on a journey as to what good looks like by reference to industry benchmarks be that value or pricing. I think the direction of travel is fairly inevitable in that respect.” John, says.

Russell Facer echoes this sentiment, emphasising the need for firms to avoid surprises:

“If you're implementing a lot of good business practices, there shouldn't be that many surprises in what the regulators want”.

Fees, Value, and Benchmarking

A significant aspect of consumer duty is determining what constitutes value for money. Simon Weldon points out that as a small business, his approach is based on clear communication and ensuring clients understand the value they receive. He emphasizes the importance of benchmarking fees against industry standards and continuously reviewing the value proposition to meet evolving client needs.

“It's down to the consumer to decide how much they want to spend”, Adds Simon.?

Russell Facer adds that data plays a crucial role in this context. Firms should focus on collecting data that is useful for their service proposition, helping them understand and improve client experiences. John Portius further elaborates on the balance between different charging models, such as hourly fees versus the percentage of assets.

According to him, “each service line has its documented fear value assessment”, and the key is to document the fee-value assessment and ensure it aligns with the firm's service delivery.?

Addressing Vulnerable Clients

Vulnerable clients are a significant focus under consumer duty. Simon Weldon shares his approach to identifying and supporting vulnerable clients:

“It's pretty much common sense.” Whether dealing with elderly clients or those in distressing situations, ensuring clear communication and understanding is paramount.

Russell Facer highlights that “everyone is vulnerable at some stage in their lives, for different reasons.” Hence the importance of handling sensitive data with care. Firms must ensure clients are aware of how their data will be used, especially when it pertains to health or other personal issues. Maintaining clear communication strategies and safeguarding sensitive information are crucial steps in this process.

John Portius agrees, noting that vulnerability can be transient and not necessarily age-related. The key is to offer clients choices and handle discussions about vulnerability with sensitivity and reassurance. Continuous training and an evolving understanding of what constitutes vulnerability are essential for advisors to provide the best possible service.

“The definition of vulnerability and what vulnerability actually means in practice isn't just evolving, I think it will continue to evolve because it's linked to the world that we live in.”

Preparing for Upcoming Deadlines

As the regulatory landscape continues to evolve, advisors must stay on top of upcoming deadlines. For Russell Facer, “advisors do need to be aware that they are the manufacturer of their service propositions”, and they should review their service propositions to ensure they remain fit for purpose. This may involve reassessing older pension and savings products or addressing historical client arrangements.

John Portius adds that the advice requirements for legacy products can be time-consuming and complex. Firms should be prepared for initial board attestations and potential requests from the regulator for detailed information. This proactive approach will help firms navigate the regulatory landscape more effectively.

Conclusion: The Opportunity Cost of Consumer Duty

The introduction of consumer duty has undoubtedly brought significant changes to the financial advice industry. While it requires substantial effort and adjustment, the benefits are evident. All in all, the journey towards consumer duty compliance is ongoing, but with the right approach and mindset, firms can navigate this landscape successfully, ultimately benefiting both their clients and their businesses.