On 2 November 2022, the FCA published a speech by Therese Chambers (Director of Consumer Investments, FCA) entitled ‘FCA’s key priorities for the financial advice industry’.
In her speech Therese Chambers discusses the Consumer Duty and its application to the consumer investments sector focussing on the four Consumer Duty outcomes:
- Consumer communications. Poor disclosure has been a consistent theme in previous FCA supervision reviews of the advice sector. The FCA is expecting better standards under the Consumer Duty than the current rules.
- Products and services. The focus on target markets should be understood as the need to understand the varying needs of the different cohorts of customer that firms providing advisory services will have. There needs to be a move from one-size-fits all models to models which are genuinely designed to meet the needs of customers and which recognise that not all customers have the same needs. In addition, when considering the products and services that will meet customers’ needs firms will need to pay very close attention to the risks involved. They will need to ask themselves the question ‘is this advice to invest in this product likely to cause foreseeable harm to this customer?’ It is not enough simply to say that the customer has a high tolerance to risk. The firm will not be discharging its duty if harm is reasonably foreseeable.
- Fair value. For financial advisers, this means the adviser charges that consumers pay must be reasonable compared to the overall benefits they receive. Firms have flexibility in how they set their charges, so they need to think carefully about whether their charging model is fair value for different groups of consumers. This could mean a firm identifies specific groups of consumers for whom their advisory charging model is unlikely to offer fair value. And where they need to make adaptations to ensure that it does.
- Consumer support. The FCA expects firms to provide support that meets consumer’s needs and expectations. Where financial advisers have committed to providing ongoing services to their consumers, these should be delivered and delivered well. A tick-box approach to detailed regulatory requirements will simply not be good enough as that will never be sufficient to answer the question of whether a firm has secured good outcomes for its customers.
Therese Chambers also covers in her speech upcoming policy work and continuing supervisory work.
In her conclusion Therese Chambers states:
“For many firms, the new Duty will require a cultural change. Cultural change cannot be achieved simply by adjustments in governance, MI, and processes. Yes, these can support cultural change, but firms’ senior management need to clearly demonstrate to the rest of their colleagues throughout their firm what putting good consumer outcomes at the heart of their business means. Firms which view the new Consumer Duty as simply a change to governance and processes are doomed to fail from the start.”