Cutting Through the Noise: What is Consumer Duty?

It has been dubbed “one of the biggest shake-ups of financial regulation”, and hailed as a “game-changing opportunity” for financial services. And on 31st July 2023, it finally came into force. 

I am, of course, talking about the Financial Conduct Authority’s (FCA) Consumer Duty. 

The core principles of Consumer Duty can be broken down into three key components: act in the customers’ best interests, deliver good outcomes, and communicate clearly and transparently. In short, aims to make sure that Britons are treated fairly, products are suitable and beneficial, and communication is transparent.

The new rules stretch across the financial services sector, meaning that banks, building societies, investment firms, financial advisers, and insurers must all comply. Essentially, all firms which are regulated by the FCA and provide services to retail customers (such as credit cards, investment management, or financial advice) must all ensure that their services result in good outcomes for said clients. What’s more, these firms must be able to prove evidence of these good outcomes.  

But that’s not all. Organisations must also prove that they provide a good value for money, strong customer support and enhance customer understanding of their products and services.

And of course, this all begs the question, what exactly does Consumer Duty mean for you? 

A Focus on Value for Money

This is a key focus of consumer duty, as it enforces the point that the price a firm charges for its services is fair to clients. However, this does not mean that the cheaper services are always the best option. 

It means that firms must reassess the prices of the products and services they offer, and conduct an honest assessment as to whether their value is truly representative of the price they offer. 

For firms, the analysis will be quite complex, as they must take into account all factors of their service such as the time taken to deliver the service, the level of customer care, and the benefits they can offer the client. Not only must firms conduct a thorough internal audit, but they must clearly evidence of the value they can offer to the client. 

Naturally, this is positive news for Britons as it will ensure they are not exposed to unfair or excessive prices. Further, it will result in a more competitive financial services market, with an array of products developed with clients in mind, at a good price. 

Better Communication and Engagement 

A major issue within financial services is the excessive jargon. For too long, many firms have burdened clients with endless documentation which is not clear, and simply too long and jargon-heavy for anyone to really understand. 

And of course, this jargon does nothing to enhance people’s understanding of the service or product that want to purchase. 

Consumer Duty regulations aim to put an end to this. The regulations will ensure that all communications clients receive, from initial phone calls with an independent financial adviser, for example, to product brochures or a client suitability letter, must be laid out in a clear, jargon-free manner. 

This is a great opportunity for firms to review their content and make it more engaging. Better use of videos or webinars could become more common features in financial services communications. Additionally, firms might reconsider their face-to-face conversations with clients and ensure that their clients are truly engaging with the information being shared.

In short, people will stand to benefit from clear communications and enhance their understanding of various products and services available to them. 

Better, Stronger Outcomes

When we say outcomes, we mean that firms must actively try to place their customers in the best possible financial position. This means that they must recommend products or services with meet the needs of each individual person. 

In short, firms must be clear about who products and services are best suited to. For example, firms cannot recommend a product or service without taking into account the entirety of an individual’s personal circumstances, attitude to risk, future financial goals, etc. – they must ensure that the product truly meets the needs of their client.

Of course, this will reduce the risk of firms miss-selling products and help customers to achieve strong financial outcomes! 

Accountability and Protections 

Finally, firms will be held accountable for their actions, and indeed interactions with clients. So, if a firm fails to uphold the principles of consumer duty, there are mechanisms in place to address and rectify the situation. 

This accountability ensures that consumers have recourse if they feel they have been treated unfairly.

A Positive for the Industry 

It should go without saying that we at My Pension Expert believe that this can only drive positive change within the sector. 

Our top priority has always been to help our clients achieve the best possible retirement outcome – and we have sought to do this since our business was founded in 2010. However, we are pleased that the FCA has strengthened customer protection across the sector. 

FCA’s Consumer Duty will benefit Britons by promoting fair treatment, transparency, positive outcomes, and accountability in the financial industry. By ensuring that financial firms prioritise their customers’ best interests, consumers can make more informed decisions, achieve their financial goals, and navigate the financial landscape with greater confidence and trust.