It paints an unusually vivid picture, but the Financial Conduct Authority (FCA)’s new Consumer Duty is like an enraged dragon. Tired of malpractice within the industry for too long, it aims to burn away any immoral or corrupt businesses.
Its mighty belly breathes out a fiery gust of new principles, guidelines, and rules for companies to follow in the hope that it will eradicate exploitative elements of the industry.
Analogies aside, the hope is that it will hold firms across the financial sector accountable to a higher standard of service with a greater degree of honesty and transparency, which will eventually benefit their clients.
At Grey Parrot, we believe our process already works towards putting our clients’ needs first and foremost, and any suggested solutions second.
Read on to learn about the new Consumer Duty, how it aims to change the way financial services work, and how it might affect your clients in the future.
The FCA’s new Consumer Duty requires firms to act in their clients’ best interests
The FCA’s new Consumer Duty regulations detail a series of consumer protections that require companies to act in a more ethical manner.
The new guidelines put the onus on firms to obey the Consumer Duty’s overarching principles and work towards delivering positive outcomes for their customers.
There are four key outcomes that the Consumer Duty focuses on within the firm/consumer relationship structure and provide an overview for businesses on the areas that require their ongoing focus and attention.
These four key outcomes relate to positive returns for consumers within:
- Products and services
- Price and value
- Consumer understanding
- Consumer support.
The Consumer Duty’s rules require firms to consider the needs of their clientele before their own profits and aim to manage how businesses behave at every step of the customer journey.
It seeks to hold companies accountable for their negative actions and forces them to support their compliance claims with hard evidence that shows Consumer Duty outcomes are being met on an ongoing basis.
The FCA’s Consumer Duty policy and guidance is likely to have a range of consequences for various businesses and associated groups including:
- Industry trade bodies and adjacent groups
- Regulated financial services firms, including those in the payments and e-money sector
- Regulatory bodies and policy makers
- Industry commentators and experts
- Think tanks and financial academics.
The new rules and guidance will come into effect from 31 July 2023 for existing and brand-new services or products that are open to sale or renewal, and from 31 July 2024 for closed products or services.
FTAdviser breaks down the three underpinning rules to the new Consumer Duty. Firms must:
- Act in good faith
- Avoid causing foreseeable harm
- Enable and support retail customers in pursuit of their financial objectives.
Unfortunately, there are firms in the financial sector that adopt approaches to their service that might not always be in their clients’ best interests and, even worse, could actually be detrimental to them.
It is vital clients know they can trust their advisers to avoid being exploited by unscrupulous firms
According to a report in Money Marketing, the FCA’s chief executive was quoted as saying the incoming Consumer Duty guidelines would “break new ground” in helping to regulate the retail financial markets.
The duty aims to target firms that currently present information in a way that exploits their clients’ behavioural biases, provide sub-par or poor-quality customer support, and sell products or services that are not fit for purpose.
Even with these new regulations, unscrupulous businesses might seek to circumvent the Consumer Duty to benefit their own profits and ultimately lead to worse outcomes for their clients.
For fans of Game of Thrones, a financial planner can be a little bit like “the hand” to your clients’ king or queen. A good financial planner will have their best interests in mind, more Tyrion Lannister or Ned Stark-like, while an unethical one might better resemble Charles Dance’s Tywin Lannister — a man with plenty of ulterior motives.
Citywire reports that at least eight firms recently saw their assets liquidated by the FCA after they were shown to run afoul of best practices and regulations.
In an ideal world, everyone would work towards the greater good. However, reality is far less black and white, and unfortunately many individuals adopt a mindset geared towards selfish pursuits.
FTAdviser acknowledges the flaws within the system and that there is a risk of bogus claims. The effectiveness of the system will largely depend on how well it is policed by the Financial Ombudsman.
There is also a downside for well-intentioned businesses as the vague nature of the Consumer Duty’s overarching four outcomes might lead to them being unfairly punished if they don’t have the right evidence in place.
This is why it’s essential for all firms to be continuously working towards positive change and regularly updating their systems, so they can say categorically that they put their clients’ interests first.
Grey Parrot works around a core goal of clients’ needs first, solutions second
At Grey Parrot, we can confidently say we seek to put our clients’ goals and needs first at all points of their financial journey and any solutions we end up providing come second.
We fulfil this obligation in a variety of ways within our working process, such as:
- A detailed, honest, and approachable consultation process
- Regular communication with plenty of supporting data and reports
- A transparent and friendly working relationship designed to better understand your clients’ needs, maintain clarity, and keep things simple
- An evidence-based and risk-tolerant investing strategy that works towards passive and patient long-term returns
- Solutions that suit the client, not the provider
- Regular reviews and support on an ongoing basis
- A fixed-fee charging structure that puts your clients’ first.
Read more: Why financial planners typically charge percentage-based fees — and why fixed fees could be better for your clients
While the FCA’s looming Consumer Duty changes have increased the pressure on firms to improve their business practices, for many businesses, like ours at Grey Parrot, this has always been the way.
At the end of the day, we want to work towards putting your clients on their own Iron Thrones, not having them fall by the wayside in the wake of someone else’s goals or objectives.
Get in touch
If you think your clients could benefit from learning more about the FCA’s new Consumer Duty and how it might affect their plans, they should contact us by email at info@grey-parrot.co.uk or call us at 02039 871782.
Please note
This article is no substitute for financial advice and should not be treated as such. To determine the best course of action for your individual circumstances, please contact us.
Production
