Consumer Duty: You’re still right Mrs McKenzie

As I’ve written in a blog before, English was never my favourite subject at school, despite my teacher, Mrs McKenzie, telling me that words, and how they are used, are what really matters. Mrs McKenzie’s words were echoing in my ears again when reading the FCA’s Finalised Guidance on the Consumer Duty, most notably the use of the words, “must”, “should” and “may”, which give an indication of the extent to which parties should adhere to the various elements of the FCA’s Guidance. Some of the biggest “musts” include:

• All firms subject to the Duty must act to deliver good outcomes to customers and comply with the cross-cutting rules. Each firm must act in good faith in its design and operation of the relevant products and services and in any interactions with the customer.
• Fund managers must develop a fund to meet the needs, characteristics and objectives of a target market of customers. It must develop an appropriate distribution strategy and set charges to provide fair value to customers. The firm must also communicate in a way that customers can understand and offer appropriate customer support standards. It must review the fund regularly to assess whether it meets the needs of the target market, offers fair value and has been distributed appropriately.
• Financial advisers must consider how it meets the Duty in the design and delivery of its initial and ongoing advisory services (where relevant). This includes, for example, considering the needs of the target market, following the consumer understanding rules for its communications and considering if its charges provide fair value.
• (For Outsourcing) Firms are responsible for their own activities and they must meet expectations under this outcome as far as they are relevant to their role. Where firms are…using a third-party provider, the usual regulatory principle applies….Firms cannot delegate any part of this responsibility to a third party.

These are just some of the “musts”, but it highlights there are several demands being placed upon all those that provide solutions to retail customers.   

Some of the notable “shoulds” and “mays” include:

• (The Adviser) should consider the overall outcomes being delivered for the customer. This should include whether the overall cost to the customer, including all product and distribution charges in the distribution chain, provides fair value. The firm should also consider if the customer is given an appropriate level of information about the overall proposition, in a timely and understandable format.
• Where firms outsource activities to third parties…they should also consider the Duty when deciding to outsource activities.
• Firms should consider the appropriate level of testing.
• Firms may wish to consider if there are any groups of customers who might suffer harm from the product or service, to consider whether this helps refine the target market.
• When firms perform value assessments… they may consider a range of factors in demonstrating that the price paid is reasonable compared to the benefits.
• One way firms may wish to test whether the target market has been identified appropriately is to consider if it would include any groups of customers for whose needs, characteristics and objectives the product or service is generally not compatible.

Again, these are just some points to note, but it reiterates there are a number of different aspects relating to the Duty that need to be considered.

Key deadlines to note include

31 October 2022 – Firms’ boards to agree implementation plans

30 April 2023 – Manufacturers complete reviews to meet outcome rules

31 July 2023 – Implementation deadline

So, what does this mean for Advisers?

The Duty builds on a number of existing regulations, so those impacted by it should already be in a strong position for adhering to its demands; that said, there is undoubtedly considerable information that firms will need to collate within a relatively short period of time to evidence their adherence. To do so, Advisers will also be looking to all the links in the value chain to seek evidence that their clients are receiving the best service for a fair price.

In this document, we set out how the HRIS model portfolios adhere to the Duty and how we’re working with our clients to provide them with what they need to demonstrate their alignment to the Consumer Duty too.  

Download here.