The new obligations from the Financial Conduct Authority, detailed in its July 2022 policy statement (PS22/9) entitled “A new consumer duty”, demand much more of providers and platforms in terms of getting to know their customers and serving them better from July 31 2023.
The implication is that they will only be able to “up their game” for customers by accumulating and acting on greater knowledge of their financial situation, retirement ambitions, risks and vulnerabilities than they have access to today.
However, by placing these new obligations on providers, platforms and financial advisers in equal measure, there is a real risk that advisers will feel threatened, particularly by providers’ closer proximity to their customers. Let us explore.
In just a few months’ time, providers, platforms and advisory companies alike must evidence that they are protecting customers from foreseeable harm, shaping products to meet target market needs, ensuring customer understanding of products, and helping them meet their financial objectives.
FCA’s four customer outcomes
The consumer duty requires all market participants to focus their efforts on improving outcomes for consumers in four key areas:
Outcome 1 — Consumer understanding: the FCA now expects products to provide clear and timely information to enable customers to make informed decisions about their finances, including debt levels, mortgages, pension savings and investments. With the increasing use of smartphones for financial decisions, digital interfaces must be responsive and smartphone-ready.
It is more important than ever to ensure customers have received and read the key product information such as its key features and charges. This information needs to be easily accessible, written in a way that is understandable, and it needs to be comparable with competitor offerings.
The FCA will be impressed by providers that know who is reading their communications. It is not enough for providers to know what proportion of their customers open their annual benefit statements. They now need to know their customers’ names, as well and how long they spent viewing these documents.
Electronic delivery lends itself to this, and for repeat “offenders” (not opening anything), a company can switch to alternative channels for getting messages across, perhaps delivering them at the right time of day for that individual to pick it up and read it.
Providers can no longer just post out regulatorily required documentation and hope that somebody reads them. They will need to make sure they are continually improving these documents, stimulating feedback and interaction with customers. Compliance with consumer duty will inevitably stimulate more digital interaction between policyholders and policy providers.
Provider/IFA conflicts
However, for high net worth individuals, many of whom have independent financial advisers, will this mean that they will be receiving documentation and reminders from providers that are “out of sync” with adviser check-ins — possibly even contradicting IFA advice?
Perhaps an early indication of conflicts to come are direct-to-consumer platforms’ communication prompts, which may create conflicts as they often remind customers to top up Isas or self-invested personal pensions prior to tax year-end without considering their other pensions on different platforms or maxed-out Isa contributions.
