Backdrop
It will not surprise some that ongoing service propositions are in the regulatory spotlight across the Financial Advice sector. For as long as I’ve been working with firms, there have been shortcomings in ensuring that customers receive the service levels they pay for and that those services provide value. Where initial advice fees are greater than ongoing service fees, there is an inherent conflict and commercial dilemma between writing new advice and providing ongoing advice to those customers already on the books.
The Consumer Duty effect
Consumer Duty and the focus on good customer outcomes throughout the entire customer lifecycle have brought post-sale servicing into focus. The FCA clearly states that firms must ensure customers receive good outcomes, fair value, and the necessary support to pursue their financial objectives at every stage for as long as a relationship is held. Firms need to pay as much care and attention to the customers already onboarded as they do to prospective new clients that increase assets under advice/management. This has triggered the regulator (and firms) to look at their post-sale servicing levels and the fees and charges customers pay for the benefits of that service. Cue the FCA survey issued to 20 of the largest advice firms regarding their ongoing service proposition and the value they provide customers.
The contagion effect
Coupled with the FCA’s thematic work is the disruption across the sector driven by the well-publicised issues that St. James’s Place (SJP) are facing and the increasing CMC interest to pursue mass claims against firms for ongoing service shortcomings, charges incurred for services not received, and general advice suitability. We know that CMCs are targeting certain firms, and there is a real risk of contagion effect spreading across the sector. It is likely that CMC impetus will strengthen once the FCA publishes further details on its findings in relation to the delivery of ongoing service propositions, and their expectations of firms where this has not been delivered appropriately.
What firms can do
Undoubtedly, the issues facing SJP (and others) are not the end. More firms will come under scrutiny, regulatory challenge, and likely CMC, operational, and reputational pressure – but there are actions which firms can take now to manage this risk and mitigate foreseeable harm:
1. Understand your exposure
- Data and evidence are king when it comes to justifying your actions. Firms must build a picture of which customers in the book were paying for an ongoing service proposition, and of these, who received it, who didn’t, and what the sequencing of these was.
2. Assess your service levels and value provided
- For those customers who did receive ongoing service, firms should ensure that the service was delivered to the expected standards. Consideration also needs to be given to whether the service should have been recommended in the first place and what level of effort was made to contact customers to arrange a review. As well as answering the ‘did we do it?’ question, firms must be confident it was done correctly.
3. Don’t have the data?
- Data availability is a challenge for firms in this area, especially where legacy systems and records come into play. If firms do not have full coverage, sample testing needs to be undertaken on customer records across different customer cohorts to give some assurance that ongoing service did or didn’t occur and that it was up to scratch. A good place to start would be segmenting and testing records based on adviser and asset value (other metrics are available).
4. Develop an approach to remediation.
- Once firms have built the picture and identified the customers at risk of harm, they should consider the remediation approach. This might take several forms depending on the different service delivery levels, customer experiences and their needs as outlined above. For instance, in some scenarios, it may be appropriate to refund all ongoing fees and charges; in others, it may be a partial refund. Some files may require detailed review to arrive at the correct outcome, and there are obvious commercial and operational considerations to be discussed.
5. Get on the front foot.
- We have learned from large-scale remediation programmes such as PPI, packaged bank accounts, DB transfers, ETVs, etc., that the longer you wait, the bigger the problem becomes. It is much easier for a firm to manage the issues within its control than to be driven to a problem by external influences. Being proactive and contacting affected customers will be less costly in the long run. CMCs can create operational challenges; however, firms can curb this enthusiasm by getting ahead of the issue, moving off the target list, and managing their expectations.
6. Plan for complaint spikes and DSARs.
- That being said, we cannot always control external factors. Large firms will likely be targeted first, followed by the medium, and then the small ones, once the issues, success rates, and regulatory position are better known. Many Financial Advice businesses are unfamiliar with complaint spikes and mass claim events. Most firms receive a handful of complaints a year. In that respect – how would you cope? We recommend firms consider what they would do if a large volume of complaints landed in their inbox. What are the processes, operating model, and resources required? Spending time on this in case of an event could add real value. Firms should consider this for both complaints and DSAR spikes.
7. Enhance your control environment
- Many of the issues outlined in this blog stem from weaknesses in governance, control and reporting arrangements – areas which have also been brought into focus through Consumer Duty. Firms should assess the data, reporting and control mechanisms in place that demonstrate whether ongoing service has been delivered as expected, and where not, what actions have been taken via relevant governance forums. If firms do not have adequate visibility of ongoing service activity, processes will require improvement to prevent the same issues reoccurring in the future.
8. Revisit your ongoing service policy and proposition
- Firms should have undertaken a critical assessment of the price and value of their ongoing service proposition through their Consumer Duty fair value assessments and made adjustments where value is not being delivered. Not only should firms consider whether the service level is commensurate with the price, but also if there should be any variations to the service for customer segments or whether it should be distributed at all. Critically, firms need to set out the approach for where ongoing service is not delivered or consistently missed to ensure customer harm is not created.
How Square 4 can help
Square 4’s consultants have been supporting a number of firms navigate these issues, and have a breadth of expertise in both regulatory and operational capacities to manage the challenges outlined in this blog. In addition, we have access to highly skilled ‘case handlers’ who can support you with capacity challenges and managing workload. We have experience managing CMC’s complaint spikes and designing remediation solutions that meet regulatory expectations and deliver good customer outcomes. We take a pragmatic, proportionate and tailored approach to tackling our clients’ issues.
Should you wish to speak with any of the team, please get in touch via hello@square4.com, or email one of the team below.
Simon Goryl, Advisory Director – sgoryl@square4.com
Elliot Cooper, Client Partner – ecooper@square4.com
