Doing our duty on behalf of the consumer

Financial services is already one of the most highly-regulated sectors in the consumer market – but this month sees a whole new level of protection added, as the Financial Conduct Authority (FCA) implements its new ‘Consumer Duty’, described as ‘a significant shift in culture and behaviour’ with the aim of achieving ‘a higher standard of care and expectation’.

In short, the FCA wants all financial planning firms to put their clients at the heart of their business and deliver good outcomes.  The new rules are aimed at avoiding the sale of products and services which are not ‘fit for purpose’ or which do not ‘represent fair value’. 

The new rules also aim to prevent consumers being given poor customer support which hinders them from ‘taking timely action to manage their financial affairs’, as well as ensuring that firms operating in the sector do not exploit consumer loyalty. 

They are particularly concerned with protecting what are termed ‘vulnerable’ clients, including those with smaller portfolios who might not be quite as financially aware as seasoned investors.

The FCA already applies significant regulation to the sector, with a set of core ‘Principles for Business’ providing a framework for the regulation.  The new Consumer Duty will add a new principle: ‘A firm must act to deliver good outcomes for retail customers’.

That means that they must always act in good faith towards those retail customers, avoid foreseeable harm to them (the word ‘foreseeable’ is important here, as the investment world will always throw up unforeseen factors), and enable and support their customers to pursue their financial objectives.

The expected outcomes from these new rules focus on products and services, price and value, consumer understanding, and consumer support.

Of course, reputable financial planners will already be doing all this, so what difference will their customers actually notice?  Well, every firm operating in the sector has had to conduct a review of how they do business, and in particular consider the value that they provide to their customers.

That has meant considering all the costs and charges that a client may pay over time, and reviewing the overall value offered.  Providers must now regularly review their ‘value assessments’ to ensure that their products and services continue to provide fair value.

Like everyone else, Lovewell Blake Financial Planning has completed this value assessment, reviewing our fee scales and the range of services we provide, benchmarking our fees and the value we offer against competitors, and reviewing whether there are services we provide which we should no longer offer.

This has been a year-long process, which culminated in the new rules coming into effect on 1^stAugust.  It has taken a considerable amount of time and effort, which is right and proper: when we are providing a service on which our customers’ financial wellbeing depends, it is vital that we leave no stone unturned.