By Simon Goryl - Advisory Director | 28/01/2025

Two and a half years on: How have Wealth Management firms responded to the Consumer Duty

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The introduction of the Consumer Duty has seemingly started a new chapter for wealth management firms. Of course, firms have (in the main) enhanced their policies, processes, and ways of working to align with the Duty as expected, but there is also evidence of more material changes across the sector that will have a direct impact on the propositions and service customers experience.

 

Proposition Evolution

Typically, as an output of fair value assessments, firms have identified a need for simpler propositions with more transparent charging structures. Some firms have taken the opportunity to reduce charges for the products and services they offer, but that is not necessarily the answer, nor is it what the FCA necessarily expects. That is, firms need to deliver a product or service commensurate with the fees paid by the customer. Where firms have maintained their proposition and charging structures, more impetus has been given to ensuring the products and services operate effectively and deliver value to customers. More rigour has been put around the quality of customer communications, disclosures, and the oversight and control frameworks that ensure what is promised, is delivered as intended. Many firms have launched new (appropriately priced) service levels, so options are available for customers with different needs, objectives, time horizons, and value preferences. Most commonly, this manifests in tiered ongoing service arrangements, the selection of which is cementing itself as a more integral part of the advice process. ‘Full fat’ offerings are not necessarily what all customers need. The right service for the right customer is a critical positive intention of the Duty. The FCA consistently stresses the importance of delivering value to customers, and most recently is challenging firms on the delivery of their ongoing service propositions. Firms have focused on putting more rigour around the controls, oversight and reporting of ongoing service delivery to ensure customers are getting what is promised, but this should not be done in isolation. The same amount of focus and monitoring should be applied to evidencing good outcomes throughout the customer journey.

 

Good Customer Outcomes

The concept of ‘good customer outcomes’ has taken some adjustment time. Most firms have spent efforts critically considering what good outcomes look like for their customers throughout the customer journey and for different products and services. What has proved more challenging is how a firm evidences those outcomes are (or are not) being delivered. Access to accurate data is key. A good, evidence based, approach to outcomes monitoring needs good data sources. Firms can leverage different metrics suites, which collectively give a comprehensive account of whether a particular outcome is or is not being delivered. In addition, firms can undertake direct customer outcomes testing (such as direct customer contact to test their understanding) to build a robust position that customers are receiving products that are suitable for their needs, provide value which they understand, and are offered appropriate support along the way.

The challenge firms are experiencing, however, is access to accurate data. Legacy, silo, acquired systems not only have the problems of not being ‘joined up’ but also that data fields are limited, and where controls have been lacking, the data captured incorporates errors or free text, which is hard to analyse. System changes and integrations do not happen overnight, but the investment from firms and the intent to do better is there. After all, improved visibility of customer outcomes and their behaviours creates an opportunity to be a better business. Many firms are using that intelligence to evolve, improve, and proactively rectify poor outcomes that have been identified.

 

Consolidation

The FCA has expressed its interest in how the sector is consolidating, along with the amount of Private Equity funding entering the market. It is clear that a lot of consolidation is taking place, with initiatives driven from both the buy and sell side of the transaction. There is correlation between the amount of work firms have undertaken to implement Consumer Duty and their size. Meaning that smaller firms, typically have bigger gaps. Significant regulatory change often requires sizeable investment, and therefore this correlation is somewhat expected. These gaps however create a risk for the acquiring firm. If the target firm is not fully compliant with the Consumer Duty (e.g. have not undertaken robust fair value assessments, have not been adequately monitoring outcomes), what don’t they know? Where are the blind spots? Will remediation be required and what does that look like? Consumer Duty compliance needs to be a key focus area of regulatory due diligence to enable the acquiring firms quantify the risk.

 

Culture, ownership, adoption

Initially, Consumer Duty was met with a *sigh* from some parts of the sector. Significant regulatory change often is. It has now been well over two years since PS22/9 was published, and slowly but surely, Consumer Duty is becoming a way of working. There is evidence that it is embedded into BAU, but we are not there yet. There is more to do before Consumer Duty truly becomes second nature and fully engrained into a firm’s culture. Firms have developed tools and undertaken key processes such as producing fair value assessments and Board Reports, but the component parts of Consumer Duty are still being delivered in isolation. The best Consumer Duty frameworks join those components together. For example, a robust outcomes monitoring framework which is operating effectively as BAU, supports fair value assessments and Board Reports. The evidence the good customer outcomes are being delivered (Principle 12) is there and readily available for firms to use to support the other components. Moving from a reactive to a more proactive ‘joined up approach’ to Consumer Duty compliance should be at the top of firm agendas for 2025.

 

Simon Goryl

Advisory Director (Wealth)

sgoryl@square4.com

Square 4

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