Why is the FCA introducing the Consumer Duty?

Green road sign reads: Intended Outcome Just Ahead, set against dramatic clouds and sky.

By AdviceBridge

With the FCA introducing the new Consumer Duty in April 2023, this article answers the burning question: why?

The FCA has been consulting on what the Consumer Duty will involve, and how it will be implemented for more than a year. It is designed to ensure that consumers are properly protected and is set to improve standards across the financial services industry.

Some of the drivers behind the Consumer Duty are perennial issues the FCA now wishes to address, such as ongoing customer harm.

Other influencing factors include Covid-19 and the increasing acceleration towards digital advice.

The changing digital landscape and, in particular, the introduction of “robo advisers” means more financial decisions are in consumer hands.

The FCA claims it continues to see practices that cause consumer harm, including:

  • Firms providing information that is misleading or difficult for consumers to understand
  • Products and services that are not fit for purpose in delivering the benefits that consumers reasonably expect
  • Products and services that do not represent fair value
  • Poor customer service and other practices that hinder consumers’ ability to act, or which exploit information, asymmetries, consumer inertia, behavioural biases, or vulnerabilities.

The Consumer Duty is designed to ensure that firms consider value through the eyes of their customers, perform regulatory reviews, and make changes where required.

It is hoped that this fresh approach will cut across sectors and themes and place an overarching responsibility on management to improve customer outcomes proactively, rather than reactively in response to regulatory challenges.

As a result, advice firms will need to evidence how it delivers good outcomes by design.

Existing principles don’t efficiently protect consumers

Although the FCA admit that the majority of firms are delivering the right outcomes for consumers, the Consumer Duty encourages firms to ask themselves if they’d be happy to be treated in the way they are treating their clients.

Speaking on a webinar in June 2023, Sheldon Mills, executive director of consumers and competition at the FCA, said: “We know that consumers don’t always get the products and services that meet their needs, or the outcomes they might reasonably expect and that’s because of the way that financial services markets might operate.

“Consumers’ ability to make good decisions can be affected by a range of factors. They might not be able to exert influence on firms, or perhaps they don’t have the same level of information as those they’re purchasing from.

“It’s also affected by consumer behavioural biases and as we see more firms use of online marketing and advertising become more prevalent and sophisticated, and their use of data, there’s increasing risk of consumer exploitation or harm.”

Advances throughout the industry have provided an increased ability to analyse consumer behaviour and monitor exactly how they respond to different prompts and information.

While this has major benefits to improving the customer experience, the concern is that, in the wrong hands, such data could also be used to take advantage of consumers’ behaviour.

The Consumer Duty builds on what you should already be doing

It’s worth remembering that, for many advice firms, the introduction of the Consumer Duty is simply a tightening up on processes that should already be established and embedded in your business.

Review your business activities in terms of where you are now and consider if there are any gaps you need to adapt to ensure your advice process meets the FCA’s expectations in light of the Consumer Duty.

Read more: Get ready for the new Consumer Duty before it bites

How embedding AdviceBridge into your business can help you prepare

AdviceBridge helps you overcome some of the issues the FCA sees that cause consumer harm. The information and reporting generated by the platform eliminates concerns that you could fall foul of providing information that is misleading or difficult for consumers to understand.

The clear language and information used in reports, automatically generated by the AdviceBridge platform, won’t hinder clients’ ability to properly assess products or services that you recommend.

Save time on inputting client data and analysis

Input client data once and the AdviceBridge software will run over 1,000 simulations, taking into account various tax scenarios and risk at wrapper level, before recommending the best structure across your client’s holdings.

This robust analysis ensures that recommendations are appropriate for the client’s needs and deliver the benefits that consumers reasonably expect.

Continuous use of the AdviceBridge platform across your client base helps you to record, monitor, test and (where necessary) adapt your business practices and processes on an ongoing basis. This allows you to ensure that you are satisfied that you’re delivering expected outcomes to your clients.

Finally, detailed management information captured and stored within the platform ensures your firm would be ready to provide information and data to the FCA. This robust easy-to-access data will allow you to easily evidence outcomes of your monitoring and testing activity.

Get in touch

Find out more about AdviceBridge and how it can benefit you as we approach the introduction of the new Consumer Duty. Book a demo, email hello@advicebridge.com, or call us on 020 3925 3850.