With the Consumer Duty implementation deadline looming, moderator Stephen Mason was joined in a webinar on 29 June by Vanessa Johnson, Head of Discretionary Management and Compliance Strategy at threesixty, and Kevin Silvester, Head of Strategic Adviser Partnerships at RBC Brewin Dolphin to get their top tips and thoughts on how firms can prepare.
How do you view the market with Consumer Duty looming large on the horizon?
Kevin: I know that firms are working hard to meet what, in some cases, will be new standards that the regulator is looking for us to introduce, and, in most cases, what we do to introduce high standards to our profession. That is clearly a big challenge for us all, and it is causing us to ask each other difficult questions about our products and services, and to make sure we make the most of the very short amount of time we have left until the Consumer Duty becomes reality.
Those following Consumer Duty in the press will have seen a ramp-up in articles about the readiness the regulator expects to see across the marketplace. I’ve seen some pretty clear communications lately about its expectations. The regulator has already started to review work it has seen from some firms within the market and published those results to highlight what they are expecting to see from others.
Predominately, our discussions, particularly with our adviser colleagues, are focused on target markets, fair value, negative target markets and the interaction between us and them, vulnerable clients, and client communications.
What would you suggest are the top tips for all advisory firms regarding Consumer Duty responsibilities?
Vanessa: To coin a well-known phrase, the Consumer Duty is for life and not just for implementation day.
The two key things we are focusing on are the products and services outcome and the fair value assessment.
Out of those, the most important one is the target market assessment, which firms will need to do for the products and services outcome. The FCA has been very clear that products and services need to be mapped across to groups of clients, and those products and services need to meet the needs, objectives, and characteristics of those clients. So, if you haven’t done your target market assessment or your client segmentation exercise in sufficient detail, the rest of Consumer Duty almost doesn’t flow.
Many advisers have done a lot of work on client segmentation and documenting those needs, objectives, characteristics etc. Where we see a bit of weakness sometimes is in the level of documentation. I would make sure this is being done to the right level of granular detail. Because if you don’t document your target market in sufficient detail, and if, for example, you are using an RBC Brewin Dolphin solution, you are not going to be able to map the solution to those clients. So, that for me is the first starting point, the target market.
The second key area is the value assessment, which is about value – not about cost or a race to the bottom on cost. It is about making sure firms provide value and benefits to their clients. That means having a look at the benefits and cost of each product and service, and assessing the relationship between those two things. We have seen many firms do a really good analysis of their costs and charges, but for some reason, they’re not so good at documenting their benefits, which is a real pity because advisers are providing real benefit, they’re just not pulling the two together.
In terms of the value assessment, I’d say, go back and have another look at that. Make sure it is all very clear and can be understood by a third party. Most advisers don’t need to provide their value assessment to a third party, but it needs to be of a standard that if you get asked to provide it to the FCA, that the FCA can understand what it is that you have done, so the audit trail and recordkeeping is key.
Kevin mentioned the recent FCA communications – ‘One month to go for the Consumer Duty’. The FCA has picked up on those points and has said that firms need to satisfy themselves that products and services are well-designed to meet the needs of consumers and the target market and perform as expected. Coming back to that target market point, if you have not done that in sufficient detail, you are not going to be able to answer that first questionfrom the FCA.
With this in mind, is the market ready?
Kevin: This is a big subject, because this is not a small paper, it’s not easy to read, and there are lots of difficult questions the regulator poses for us all.
This does not just sit in advice firms; it sits across the industry to make sure we are all where we need to be.
Each firm will have to make their own assessment of that and make sure they are ready to satisfy the regulator if it turns up on their doorstep and starts asking those questions. My perception is that we are all trying to better understand what actions are left for us to be individually ready for Consumer Duty.
So, the answer is that whilst some firms are absolutely ready, most probably still have work to do.
Most important for all of us is the culture that sits behind it within our firms and that is what the regulator is expecting us to deliver. And on that, I think it expects all of us to do much better.
Which areas of Consumer Duty are realistically going to be trickier to deliver properly before we reach the deadline?
Vanessa: Kevin has mentioned culture etc. It’s important that the Consumer Duty requirements are implemented properly. The one main area where firms may need more time is around consumer understanding. What you need to do under that outcome is to undertake a complete root and branch review of all communications – be that marketing literature, client agreements, suitability letters – and make sure that they are targeted to the level of the target market. You need to have a look at the clients in your target market and make sure that you’re communicating with them in a way they can understand. There is going to have to be a much more imaginative use of presentation with the use of layering and risk boxes, for example.
That is not all going to be done before 31 July. What we expect is that some firms will have prioritised their key communications, particularly those where consumers may need to take action, but then the key thing is to have an action plan in place to show how those other communications will be reviewed and to show the regulator that you have thought about it and are still working on it.
If you’re working with a discretionary manager, you’re going to be dependent on that discretionary manager or product provider to have reviewed its own communications and passed those down to you.
Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness. Opinions expressed in this publication are not necessarily the views held throughout RBC Brewin Dolphin Ltd.