Just under six months ago, the concept of Consumer Duty became a reality, challenging firms to place more onus on the consumer and their outcomes than ever before. Let’s explore consumer duty in action: navigating the real-world impact
Expectations vs. Reality
In the real world, the regulations and the reality may differ. Over time, clients will no doubt see the real long-term benefits should the regulator’s intentions be brought to fruition, but to get there each firm’s journey will be different. For some it will require a real cultural shift, whereas it will mean just a few small adjustments for others.
Good outcomes have always been at the heart of the FCA’s approach here. A simple desire to encourage, influence or possibly even force firms to put greater focus on the consumer and their outcomes to improve the industry’s reputation. Further, when people have more positive experiences, they will typically seek to use such services more and therefore, the FCA are hoping this will lead more people to consider taking financial advice to achieve their goals and aspirations. This can only be a good thing for the industry (not to mention those receiving the advice)!
A Tale of Consumer Frustration
A good friend was recently telling me of a situation with her ISA provider, which led to outcomes that don’t seemingly align with her objectives or the regulations.
Their aim was relatively simple, a written request to transfer funds from an existing account to a higher interest bearing ISA. Simple, but made difficult because two months later the request had not been processed and instead seemingly ignored. When challenged, the provider in question accepted their error but required a new form to be completed to confirm the instruction before they could act.
Reflecting on Compliance and Consumer Expectations
Let’s consider that and the new cross cutting rules. Is that enabling and supporting the client to pursue their financial objectives, is that acting in good faith and is that seeking to avoid foreseeable harm? Unlikely, I think you’d agree.
The guidance also talks about sludge practices, effectively “harmful friction” or barriers that unreasonably restrict a consumer from acting in their interests. Does the completion of a form setting out the request, two months after a written instruction which already does so, not constitute a barrier? Afterall, that merely delays the transfer even further, and reduces the chance of the consumer achieving their objectives of higher interest in a tax free environment.
One has to consider, for the regulations to do their job, whether the firm in question will take time to reflect. Would they consider this a one off, an issue with their consumer support, an administration issue, an issue with sludge practices or a more deep routed cultural challenge where clients are not placed at the centre of everything they do.
While for my friend the issue has been rectified, its proof that Consumer Duty and the reach of Principle 12 is needed for the consumer and industry, but naturally means firms will have to look within moreso than ever before and be seen to be taking appropriate action, and proving rather than assuming good outcomes.
The Future of Consumer-Firm Relationships
Consumers aren’t stupid, and firms risk their own futures believing otherwise. Consumers are more discerning than ever, demand more transparency and have greater expectations around behaviours of the firms they choose to place their trust in. They can, and will, irrespective of Consumer Duty, vote with their money if these expectations aren’t met.
For anyone on a Tube recently, you will have heard “See it, Say it, Sorted”. I think that is largely similar to what we can expect longer term between consumers and FCA regulated firms. The real question, who do you want seeing it and saying it?
Next up: why not read our blog on Digital Transformation and the Wealth Management Industry?
