Consumer Duty initiative brings higher standards for UK financial firms
For the last year or so, financial firms in the UK have been getting their knickers in a twist about a major initiative that’s been launched by the regulator, the Financial Conduct Authority (FCA), the Consumer Duty. So what is it?
Here’s how the FCA introduces Consumer Duty on its website;
On 31 July, new rules came into force for financial services firms.
The new rules, known as the Consumer Duty, set a higher standard of consumer protection in financial services.
The Duty means you should get:
the support you need, when you need it
communications you understand
products and services that meet your nee• ds and offer fair value
We’re closely monitoring how firms are putting our new rules in place and will take action against those that aren’t following them.
These words seem simple in concept, but in practice they have meant that all financial firms have had to undertake an in-depth review of their policies, processes and procedures to meet the expectations of the Consumer Duty, and to improve them where necessary. The deadline for completion of this work was the 31st July this year, and the review has kept our team very busy to make sure we were delivering the results both we and the regulator are looking for.
So what exactly is the Consumer Duty?
The Consumer Duty is based around a new ‘Consumer Principle’, which states that;
“A firm must act to deliver good outcomes for retail customers”.
There are 3 overarching ‘cross-cutting rules’ which require that firms must;
Act in good faith towards retail customers,
Avoid causing foreseeable harm to retail customers, and
Enable and support retail customers to pursue their financial objectives. •
This is an exacting standard of conduct with a greater focus on protecting client outcomes. Rules and guidance have been set out with more detailed expectations for firms conduct in the following 4 areas that represent key elements of the firm-client relationship –
Products and Services – all to be fit for purpose, designed to meet client’s needs and targeted at the clients whose needs they are designed to meet
Price & Value – products and services to represent fair value in relation to meeting client’s needs and objectives and in relation to the price they are offered at
Consumer Understanding – clients provided with the information they need, at the right time and presented in an accessible way they can understand
Consumer Support – customer service that meets clients’ needs throughout their relationship with the firm
Who does it apply to?
The FCA require all firms who have a material influence over, or determine, retail client outcomes to comply with the new duty. This includes those who design, manufacture and distribute a product or service.
How does this affect Chesterton House and Woodgate?
As an Independent Financial Advice firm we are considered to be manufacturers of our own service and distributors of the products we recommend.
What actions have we taken?
In August last year we set up a project group to analyse all of our operations across our business and identify any ‘gaps’ or areas where we believed we could improve or add additional value. This involved a significant amount of work across all departments and whilst we identified some areas for improvement, many of which we were already ‘in the pipeline’ before Consumer Duty was launched, the overall outcome was very positive, and we are confident that we are well positioned in respect of the FCA’s expectations. Crucially we have concluded that our products and services are fit for purpose, represent fair value and are targeted, distributed, communicated and supported in a way that creates positive client outcomes.
How does this affect me as a client?
At Chesterton House Financial Planning and Woodgate Financial Planning we have always prided ourselves on the service we provide to our clients, both in respect of our ‘Values- Based Financial Planning’ approach, and the ongoing support we provide. For several years we have encouraged our clients to provide their views of our service, typically by way of questionnaires and surveys, and we will continue to do so with a refreshed and easier to complete version which we will be launching in the next few weeks. Your feedback is incredibly valuable to us and helps us to shape our service in a way that serves you, our client, to the best of our ability.
In 2022, 97% of our clients who responded gave us a top score of 5 out of 5 for their ‘overall experience’, and 93% for ‘satisfied that we have helped you to achieve your goals’.
At the half year point in 2023 we were 100% for both, and this was before the Consumer Duty deadline.
Changes behind the scenes
Whilst we don’t envisage you will notice any significant changes to the service you receive, we have made a number of changes behind the scenes to help improve your experience with Chesterton House Financial Planning and Woodgate Financial Planning. In particular we’ve reviewed and improved our internal processes, re-written or simplified our communications, and considered our pricing and the value that we offer.
We’re pleased to say that, unlike some firms, the result of this in-depth review is that we’ve been able to confirm that our existing service meets the new, exacting requirements without any significant changes being necessary.
But don’t just take our word for it….
On the 11th September we received our annual risk assessment from our external auditors, a firm with detailed knowledge of financial services firms, best practice and the Consumer Duty requirements. As well as looking at how effectively we manage risk and compliance within our business and how we meet the expectations of the FCA, our Consumer Duty work was also reviewed in detail. No key issues or concerns were raised with just a few minor suggestions for future reference. We believe this is testament to the hard work our team put into delivering our core promise to our clients, and the ethos that is at the heart of what we do, with a strong framework, systems and processes in place to support that.
So what next?
This doesn’t mean we can now ‘rest on our laurels’, far from it! Staying abreast of financial, economic, legal and regulatory changes as well as responding to the ever-evolving needs of our clients is a full-time task, and we continue to build on the good work completed so far. Our Compliance Manager, Jon Potter, has been a real asset to our teams in delivering not just good but great outcomes for our clients, and his guidance continues to be influential in ensuring that we are achieving the results that we and our clients desire.
If you have any questions or comments about Consumer Duty and the work we’ve been doing please don’t hesitate to get in touch.
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