Meeting the Consumer Duty challenge – essential steps for IFAs

As the clock ticks down to 31 July, 2023, advisers face a race against time to implement Consumer Duty. So what exactly is it? And how can you make sure you’re best placed to hit the ground running?

What is Consumer Duty?

If you thought Consumer Duty was a tweak to Treating Customers Fairly, you need to think again. Although both protect people and promote fair treatment, Consumer Duty specifically focuses on delivering good outcomes for retail customers at every stage of producing and delivering a product or service.

It asks financial services firms to put their customers at the heart of everything they do, ensuring that:

• Products and services are fit for purpose and meet the needs of customers.
• There is a reasonable relationship between the price paid and the overall benefit customers receive from the product and service.
• Information customers need to make informed decisions is provided to them at the right time and presented in a way they can understand.
• The level of support provided to customers also meets their needs.

These regulations outline three crucial obligations you have to meet when working with your clients:

1. Act fairly, avoiding any practices that could be considered unfair, misleading, or aggressive. Ensure your interactions and recommendations align with this obligation, act in your clients’ best interests, and provide unbiased advice.

2. Provide clients with clear and transparent information about your products or services. This includes pricing, the benefits, terms and conditions, and any associated costs.

3. Empower your clients to make informed choices. You must offer a range of options without any pressure to make hasty decisions. It is essential you educate them about the various factors that may impact their financial decisions so they can make the right decisions at the right time.

Identifying vulnerable customers 

Part of Consumer Duty also includes recognising clients who may be vulnerable and changing your approach appropriately. The Financial Conduct Authority (FCA) splits vulnerability into four key drivers:

• Health – includes conditions or illnesses that may affect a person’s ability to carry out their day-to-day responsibilities. This covers physical and mental health conditions that may impact their financial decision-making or ability to understand and engage with financial products and services.
• Life events – include bereavement, job loss, or relationship breakdown. These can create emotional, financial, or practical challenges.
• Resilience – focuses on a person's ability to cope with financial or emotional shocks, or unexpected circumstances, such as changes in income, increased expenses, or economic instability.
• Capability – considers people who may have limited knowledge of financial matters or who lack confidence in managing money. It also includes factors such as low literacy, numeracy, or digital skills that may impact their ability to navigate and understand financial products and make well-informed decisions.

Regardless of the circumstances, all may need your tailored support and understanding. Make every effort to identify your vulnerable customers – including training staff if needed – and be flexible and empathetic, according to your clients’ individual needs.

So with less than a month to go until Consumer Duty comes into force, here’s how you can double down on your preparations.

Your three key takeaways for Consumer Duty confidence

1. Check your plan
   
   

Depending on the size of your business, this may be a huge spreadsheet, a handy checklist or some scribbles on a napkin. Either way, by the end of July, you will need to ensure that you have addressed all the required areas in some way. While you may be able to delay some aspects considered lower risk, you should diligently review each item and provide clear evidence of your progress.

2. Prioritise your communications
   
   

Effective communication plays a vital role in addressing risks and ensuring your clients are clear about what’s expected of them, and what you, your products and services offer.

Always wear your client hat and consider if someone with no knowledge of investing or the financial world will understand you. Be accurate, clear and conversational, and take out any jargon. The financial sector is notorious for using impenetrable language – which is a major gripe for clients. Work on the essential and important documents or web copy first, so they will be fit for purpose in time for deadline day.

3. Gather quality data
   
   

Showing how you provide fair value can be tricky. The FCA's review of fair value assessment frameworks goes beyond price alone, and looks at how the broader benefits of products and services add value. To demonstrate this, collect high-quality data.

By asking your clients for feedback via an online survey, email or follow-up call, you can help showcase how you add value, differentiate yourself from the competition, and reinforce your support and advice. It also enables you to identify any red flags and adjust your approach accordingly.

Yvonne Chadwick, Flagstone’s Compliance Director added: "Instilling the right culture will be crucial to meeting our obligations under Consumer Duty. It's not just about compliance. It's about putting our clients first, understanding their unique needs, and providing tailored support. It's a call to action for all of us to step up, redefine the way we serve vulnerable customers, and build trust in an industry that strives to deliver value and empower individuals on their financial journeys."