25 July 2022
Ahead of the release of the FCA’s Consumer Duty paper on Wednesday 27th July, please find commentary from David Tiller, commercial and propositions director at Quilter, on what the new rules will mean for platforms and advice:
“The new Consumer Duty is a watershed moment for financial services in the UK. It represents a cultural shift in regulation from treating customers fairly to positioning customers to achieve good outcomes – and proving it. This is an entirely reasonable ambition and, as such, I believe that we should get behind Consumer Duty and use it as the springboard to build deeper relationships with the public we serve.
“The clear focus on customer outcomes and the measurement of value will expose poor practices that fail to deliver for the consumer while providing a unique opportunity to help customers see the value of the great things most financial services businesses do. Essentially, this is regulation that will sort the wheat from the chaff.
“Some simplistic commentaries mistakenly link value to the cheapest price. This is simply incorrect. It is important to guard against the presumption that value equals cheap. As in all aspects of life, cheap does not usually mean quality. The focus of the Consumer Duty is the customer outcome, so it is vital advice is backed by quality reliable componentry. Cheap components often break under stress. Quality advice, technology, products and services command a premium because of the value they provide.
“I am confident that most advisers understand this, and it informs their choice of platform or investment solutions for their customers. However, another aspect of the Consumer Duty may present more of a challenge – the question of whether customers truly understand the value of what they are paying for. For example, some platform services such as pre-funding trades, or investment activities such as finding uncorrelated sources of return, have clear customer benefits. However, it is likely that few customers understand that is part of what there are paying for. Given this, are they really aware of their value? And should advisers still arrange these services if they are not?
“Of course, advisers must continue to help their clients benefit from these services, as they increase the likelihood of a good customer outcome. We need, however, to get better at explaining this. Under the Consumer Duty, the connection to the customer outcome is key – with clear causal linkages. Pre-funding means not missing out on market growth by being in cash if trading when the market moves and uncorrelated assets means a smoother journey to the same destination as returns are achieved with less volatility.
“Advisers will also have to be expert at explaining to the customer value of things that help make their businesses more efficient, including tools and technologies that are not covered under their advice fee. Whether through the advice fee, the platform fee or the investment fees, it is all part of the advice given and the simple truth is that the customer ends up paying for everything anyway.
“With the Consumer Duty advisers will be expected to be able to clearly articulate the customer value across the value chain. For advisers, being forced to use a cheaper less efficient provider could mean an increased cost in delivering their advice, with customer savings more than offset by the additional costs incurred. This is a trade-off that people understand. While it may be cheaper to take a bus to the Mediterranean for your summer holiday, most people choose to fly understanding the additional cost offers speed and convenience.
“Finally, the FCA will want value assessments and the likelihood of good customer outcomes to be measured. Compliance will be substantially data-driven and advisers will be expected to do this end-to-end. Again, this is an area where quality matters. Some providers may struggle to support advisers and push the challenge of evidencing value onto them. At Quilter we are working very hard to avoid passing the burden onto the advisers, as we believe that we are well placed to provide this in an efficient and economical manner. There is clear customer value in the cost of compliance being borne by the parties who are best placed to deliver efficiently.
“The Duty gives financial advisers and the whole financial services market the opportunity to truly demonstrate the value of what we do. Despite the challenges, the Consumer Duty is good news, but firms should not be complacent. The FCA will expect firms to demonstrate value through good governance, hard metrics and dispassionate assessment. This is where advisers need to look to their platform and investment partners for the support required to make this easy.”
