In early 2023, there was a lot of grumbling about the big regulatory changes happening right around the time everyone was gearing up for their summer holiday. But as the year went on, that frustration started to fade and both advisers and providers began to appreciate the benefits of Consumer Duty. Looking more closely at the regulations made it clear that the focus was on ensuring good outcomes for all retail customers.
On the first day of the implementation of Consumer Duty, a significant milestone was marked by the FCA's decisive action on the cash savings market, amid concerns that not all savers were getting good deals and aiming to support customers in ensuring they benefitted from higher interest rates. This immediate enforcement served as a clear signal that non-compliance with the new rules was not an option.
The transformation within the industry has been driven not just by meeting regulatory requirements, but by embracing these changes as opportunities to improve business governance, efficiency and market focus. There has been a renewed focus on what an adviser’s role is - engaging with clients, understanding their needs and designing strategies to meet those needs. More administrative-based tasks such as rebalancing portfolios and monitoring income flows can detract from this, which has meant more firms outsourcing investments and back-office functions, allowing advisers to concentrate on their core skills.
There has also been an increased emphasis on Fair Value Assessments. While these already existed pre-Consumer Duty, the new rules extended this concept to all aspects of the client experience, requiring advisers to evaluate whether their total client fees provide fair value.
We have seen a change in the level of due diligence as well, as the regulator states that quality and cost assurance processes must be robust, repeatable and demonstrable. As a result, many firms are leveraging technology, particularly AI, to combat this increased requirement of due diligence.
Providers have also responded by strengthening internal governance and audit functions and refining target market definitions in line with the Products and Services outcome. Ensuring that their products offer fair value has become a core principle in these businesses. Advisers have also become increasingly selective about their partner providers, insisting on higher standards.
This is not to say there are not some detractors. There are still many advisers – and providers - who view Consumer Duty as a pointless exercise, highlighting that they already take good care of their clients or deliver value. These feelings are usually paired with a frustration over the FCA’s perceived inaction when customer outcomes are compromised. There is also the argument that increased regulation has only served to widen the ‘advice gap’, with our recent research showing that 55% of advisers had stopped serving clients as a result of Consumer Duty**.
So, one year in, what has changed? The regulator has become much more stringent when it comes to poor client outcomes. With just 45% of UK consumers trusting financial advisers to act in their best interest and 59% not having confidence in financial services as a whole, Consumer Duty has provided the opportunity to tackle this perception. Improving trust will require a proactive approach, but for advisers who succeed, the rewards will be well worth the effort.
*the FCA's 2023 Financial Lives survey
**The Advice Gap 2024, the lang cat
Written by The Lang Cat
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This article is issued by Liontrust Investment Partners LLP (2 Savoy Court, London WC2R 0EZ), authorised and regulated in the UK by the Financial Conduct Authority (FRN 518552) to undertake regulated investment business.
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