The new consumer duty regulations have placed a firm emphasis on businesses regardless of size to act in good faith, enable and support customers in the pursuit of financial objectives, and avoid causing foreseeable harm.
The latter of these cross-cutting rules is going to be vital for adviser businesses up and down the country to ensure they comply with the new regulations and also produce those good customer outcomes the regulator expects to see.
Now, this rule will truly place the onus on providers to clearly explain the limitations to their products and solutions as well as their value. However, advisers will need to identify where the potential risks are within their businesses, and how they plan on mitigating them to avoid any harm being done to their loyal customer base.
Cheap does not equate quality or value, and by going down this road advisers could be introducing further risks.
There is not long until the consumer duty needs to be implemented by businesses and as such this identification process needs to begin in earnest. We believe there are going to be four key areas advisers will want to look at first and foremost and think carefully about the actions they subsequently take.
Products or platforms that lack functionality for the near future
Too much emphasis around consumer duty has been placed on cost and ensuring this element of a customer’s journey is minimised. However, cheap does not equate quality or value, and by going down this road advisers could be introducing further risks.
For example, transferring a client to a low-cost pension wrapper with limited income options just before retirement could be viewed as being at odds with the client’s clear intent to take an income in the most tax-efficient manner, at a time that suits them.
Taking a binary view that replacement business must be at a lower fee may leave adviser businesses open to challenge.
Advisers will need to think about the potential for having to execute a further switch as this could be considered a foreseeable harm as a result of incurring further advice costs or time out of the market. Recommending the most suitable product with the benefits it brings the client based on the lifecycle will be key, not at the point in time.
Every decision has to be weighed carefully and this will require compliance officers taking a balanced view. Taking a binary view that replacement business must be at a lower fee may leave adviser businesses open to challenge as to whether they are causing foreseeable harm.
Assets being held on platforms going through technology revamps
There are numerous examples of challenges occurring as a result of technology projects and asset migrations, often continuing for many months. History has shown us that the service disruption caused by these errors could result in serious foreseeable harm.
The Financial Conduct Authority is clear on this and says: “Firms should avoid causing harm to customers by making sure their customer support does not impose unreasonable extra costs, including exit fees or other charges, delays, distress or inconvenience.”