With the deadlines around the FCA’s A New Consumer Duty getting closer, I wanted to cover the top 5 things you can do today to prepare.
Everyone knows that Consumer Duty is coming, however attitudes towards it have been mixed. Some have been preparing ever since it was announced, some have yet to get round to looking what it is! Most advisers I speak to are in the middle ground of knowing they need to do something, but not sure quite what or how to approach it.
But first, these are the deadlines that you need to know about:
31st October 2022 – Directly Authorised firms need to have an implementation plan in place and agreed by their board showing what they are going to change and when to comply with Consumer Duty.
31st July 2023 – Firms must adhere to the Consumer Duty principles for all new advice given. Don’t forget that an annual review is positive confirmation of ongoing suitability. Annual reviews will therefore need to follow the Consumer Duty principles.
31st July 2024 – Legacy products will need to meet the new Consumer Duty principles. Whilst this doesn’t affect advisers, product providers will most probably be making some changes which will affect your clients, so you might want to review and move legacy assets before this date, or the providers may move them for you (possibly engaging directly with your clients in the process).
So, what can you to do prepare?
1. Create your implementation plan
All Directly Authorised firms are required to have a Consumer Duty implementation plan in place and agreed by their board by the 31st October. The implementation plan should set out where your firm is now, what it needs to do to comply with Consumer Duty and how you’re going to get from A to B.
Your first step should be a gap analysis. This is an analysis of your existing processes and data to see which wouldn’t comply with Consumer Duty. Once you know the areas that need to change, you can use this to create your implementation plan.
If you’re in a network or national, you don’t need to create an implementation plan as the responsibility to do this falls on your principle. However, you are going to have to comply with Consumer Duty so it’s well worth conducting the gap analysis to see what you need to change within your business ahead of being instructed to by your national or network.
2. Review your data and technology
Consumer Duty is all about data. It’s about proving you’ve creating good consumer outcomes. If you imagine you’re in a financial services exam, TCF was about getting the right answer, Consumer Duty is about showing your workings.
You’ll no doubt currently use some data within your business to monitor performance, compliance, etc but I’m willing to bet you’ll need to create more data to be able to comply with Consumer Duty. You’ll need to be able to show how pretty much every process in your business positively contributes towards delivering good consumer outcomes.
A great way to do this is by getting feedback from your clients. How much value do they feel they receive from your ongoing service? Do they think your communications are easy to understand and timely? If you don’t already survey your clients, now is the time to start! But really think about the questions. Your aim is to see how effective your processes and services – this is not a customer satisfaction questionnaire.
In line with the requirement to generate, monitor and manage more data, this is the perfect time to review your tech stack. Most advisers use about 10% of what their technology is capable of and often have multiple systems which can all do the same thing.
Take some time now to investigate what your current technology is capable of and if you have any overlap between systems. Engage with your technology provider to ask them how their system can help you with Consumer Duty. You might be surprised by how much your technology can assist with collecting, managing, and analysing the data you need for Consumer Duty.
3. Simplify your proposition and CIP where possible
Centralised Investment Propositions (and Centralised Retirement Propositions) are designed to make your life easier as an adviser by pre-researching solutions for client segments with similar needs.
I speak to a lot of advisers who have made their CIP look spectacular! They have a choice of 5 platforms, each with 5 fund ranges to choose from and a handful of DFMs on offer. Whilst it may look impressive, it completely defeats the point of a CIP! The adviser will have to do a comparison between all of the solutions available for each client segment and to be honest, if you’re comparing 5 funds, it’s not that much easier than doing whole of market research.
Take the time now to see if you could simply your CIP but decreasing the number of options. If there are 3 fund ranges to choose from rather than 5, I’m willing to bet the client will still get a suitable investment. Remember that receiving financial advice is the ultimate alpha!
Now is also the perfect time to review your proposition and charging structure. There are two things I suggest you focus on:
1. The number of charging/service options
2. How much you charge
Just as with a CIP, sometimes less is more. I’ve seen advisers with 5 different levels of ongoing service! Are there really people who have such diverse service requirements within a normal client bank? Probably not. Clients don’t shop around based on price so don’t’ be afraid to amalgamate ongoing service levels. The fewer different services you offer, the fewer you’ll have to review to show that they are value for money.
Consumer Duty will increase your workload so think about what becomes a profitable level to service your clients. Rather than reduce charges, Consumer Duty is the perfect time to assess what is value for money and potentially increase your charges to reflect the additional workload.
The best way to find out what your client’s think is value for money is to ask them. Why not send a survey now asking what they value most from your services? It will make you much more informed when creating your Consumer Duty ready charging model.
4. Embed the feedback cycle into your processes
In order to have the data you’ll need to comply with Consumer Duty, you’ll need to generate it from somewhere and that’s where the feedback cycle comes in.
The feedback cycle is a way to generate data from your existing processes so that you can check they are producing the desired results and good consumer outcomes. Each business may want to create their own feedback cycle, however this is our view of the stages you’ll need to ensure good client outcomes:
1. Monitor – record what has happened
2. Test – check if the action has provided a good consumer outcome
3. Understand – assess why that outcome has happened
4. Act – make changes (or not) based on your understanding
5. Evidence – record what you’ve found out, how you’ve acted as a result and why
If you use this approach with your existing processes, you’ll start to create the data you need to either validate that your approach is working, or if no, what changes you are making to create the right outcomes.
In terms of processes, think about everything that impacts on the advice you provide. If you’re not sure what processes you run within your business, here are a few you’ll probably run as a starter:
· Onboarding
· Annual reviews
· Communications
· Research
· Implementation of advice
The list could go on but you get the idea. Take some time to think about your processes and how you can embed the feedback cycle into them.
5. Don’t wait!
This is possibly the most important advice I can give; don’t wait, act now! Whilst July can seem a long way off, Consumer Duty will change the way you work forever, and it’s going to take you more time than you think to get everything in place. Make consumer duty your number 1 topic of conversation in your business and approach every situation thinking “will this comply with Consumer Duty?”
If you’re not sure where to start with your preparations for Consumer Duty, give us a call. Working with a consultant gives you access to all of the best ideas in the market, without all the trial and error and, let’s be honest, the Consumer Duty deadlines don’t leave time for trial and error!
Call 0114 4890096, email hello@changesquared.com or complete the contact form on our website to supercharge your Consumer Duty journey.
