The buzz on the Consumer Duty

The Consumer Duty sets higher and clearer standards of consumer protection across the financial services sector. Good client outcomes and fair value for clients stand at the heart of the advice sector, so firms should already be delivering on the majority of what the Consumer Duty aims to achieve through existing processes and regulatory alignment but there are likely to be additional steps that advisers need to take.

The Buzz research aimed to identify the levels of awareness of preparedness for the regulation, as well as its likely impact. Reassuringly, more than half of those surveyed had made some changes seven months ahead of the regulation coming into force at the end of July. This and other key findings are set out below.

Awareness

Pleasingly, the research found that all advisers are aware of Consumer Duty and seem fairly confident about what the new guidelines mean for them and their firm.

A total of 80% of advisers are either very clear (21%) or fairly clear (59%) about the new rules.

Clear on what Consumer Duty rules/guidelines mean:

• 59% Fairly clear
• 21% Very clear
• 16% Not very clear
• 4% Not clear

This proportion drops slightly for smaller firms. Only 78% of advisers from firms with less than ten advisers have a good understanding of the Consumer Duty, compared to 92% of advisers from medium-sized firms (10-50 adviser) and 85% from larger firms (more than 50 advisers).

This picture is fairly consistent across different types of firm and specialisms, albeit there are signs of more certainty among risk specialists'.

Impact

The vast majority of advisers believe the new guidelines will have at least some impact on them and their firm, albeit not too severe an impact.

Some 38% of advisers reckon it will have a moderate impact. Meanwhile, 18% think it will have a fairly big impact and another 27% are expecting a minor impact.

Impact of Consumer Duty rules/guidelines:

• 38% - a moderate impact
• 27% - a minor impact
• 18% - a fairly big impact
• 8% - no impact
• 5% - a significant impact
• 4% - not sure

Advisers from smaller firms are more likely to anticipate little to no impact with 40% of them being of this mindset versus around 20% of those from medium and larger firms.

Across segments, general practitioners are more likely to expect to feel an impact, potentially a feature of the wider portfolio of products and services they advise upon.

Preparedness

Encouragingly, at the time we canvassed views, most firms had made headway in adapting to the new guidelines.

A total of 46% had made small changes with another 7% making significant changes. Meanwhile, changes were afoot for 26% of advisers. Only 14% had neither made changes nor were aware of any planned changes.

Changes made in response to new Consumer Duty rule/guidelines:

• 46% - Yes, small changes
• 26% - No, but there are changes planned
• 14% - No and not aware of any planned changes
• 7% - Yes, significant changes

The picture was fairly consistent across types of advisers but there were signs that mortgage brokers are further ahead (with 69% having made at least some changes) and that it is taking larger firms with 50 or more advisers slightly longer to mobilise or implement changes (with 48% having made at least some changes).

Provider support

Despite this clear progress, 65% of advisers still welcome practical support from product providers.

• 65 - Yes
• 35 - No

Levels of interest in support are similar across tiers and segments. The proportion creeps up slightly for general practitioners and mortgage brokers (both 72%) and drops off for medium-sized firms of 10 to 50 advisers (48%).

There is a general sense that advisers and providers are ‘in it together’ and can help each other. In terms of what kind of support from providers would be useful, the emphasis is on practical support through sales materials and demonstrating compliance.

Webinars are often suggested as a platform for advisers and providers to share best practice. At Zurich, we are listening to the needs of advisers and tailoring our support accordingly.

Suggestions for what kind of support would be useful typically fall under following hey themes:

• Interpreting the guidelines cutting through the FCA "jargon"
• Understanding the implications and what it means in practical terms across products
• Shared learning to help validate the steps are being taken
• Updates on how understanding is evolving and reminders of deadlines
• Demonstrating compliance
• Template materials (working, paragraphs)

FCA guidance

One adviser surveyed said they found the guidance given by the Financial Conduct Authority (FCA) and other adviser support services to be more than sufficient.

On 10 May, with fewer than 90 days to go until the start of the Consumer Duty, the FCA urged firms to ensure they are ready for the 31 July deadline.

‘If applied correctly by firms, the Consumer Duty should help firms retain and attract customers and will enhance the competitiveness of our financial services sector,’ said Sheldon Mills, executive director of consumers and competition at the FCA.

‘The Duty will mean that consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.’

To provide further support, the FCA has shared findings from its review of firms’ fair value assessment frameworks. This highlights good practice and sets out four key areas for firms to focus on, which include collecting evidence that demonstrates products represent fair value and having clear oversight of actions to take if products do not provide fair value.

With high inflation and rising mortgage costs also being key challenges for advisers and their clients this year, it is arguably even more vital that consumers get fair value, which should in turn cement the UK’s place as a market leader in financial services provision.

‘The Duty will help the UK financial services industry remain world-leading proponents of financial services, as firms have to think harder about innovating and competing to find better ways to serve customers,’ added Mills.

For further information on the regulation see the FCA’s Consumer Duty page. And to find out more about our research among advisers on the cost of living and Consumer Duty click here.

This research was carried out on behalf of Zurich by Human8, an independent market research company.