Take the Consumer Duty seriously when it comes to protectionAs we are approaching the final few months before the introduction of Consumer Duty it is becoming clearer and clearer via our own work at Paradigm - and the Regulator’s own output - that the changes required by advisers will be far-reaching.
Pretty much every area of the processes employed will need to be looked at forensically to ensure the new rules are being adhered to.
While the process of factfinding, research and suitability will not change per se this should not be taken as an indicator that doing no more than firms do at present will be fine.
The implementation cost alone, at over £1bn, by the FCA’s own estimates should indicate the serious manner in which they take the new rules.
We do now however have a better understanding of the four main outcomes and of course the cross-cutting rules, especially that of avoiding foreseeable harm to retail clients.
That rule in itself could open the floodgates for complaints and should not be taken likely when reviewing advice given to customers and in some cases not.
Quite rightly many firms have been initially concentrating on their own areas of business in analysing changes to processes they will employ post-July 31st but firms would be well advised to take a broader view of the rulebook.
For wealth firms who are regulated to give protection advice, they should be considering it in the areas of IHT especially, where they will be well aware of the assets held by a client and the potential for IHT.
We are more than aware of the number of new Claims Management Companies that are waiting in the wings for an opportunity to capitalise on the rules and the more obvious, and potentially most rewarding, will come from those clients who paid a big IHT bill when basic advice would have helped avoid it.
Similarly in the mortgage arena where advisers do not give protection advice when they are authorised to do so – those firms will be subject to scrutiny too by the letter of the rulebook.
At Paradigm we are trying to support DA firms by producing output on our website free to those wanting it, and as such have recently completed videos on Price and Value, Products and Services, Consumer Understanding and Consumer Support - those being the four core outcomes.
We have tried to give practical examples of how these will manifest themselves in a day-to-day operational environment in the key business areas of wealth, mortgage and protection.
Networks will no doubt have their plans for implementing changes as will larger wealth and mortgage firms. Those requiring support most will be the small- to medium-sized DA firms who most often are the firms with limited capacity to take a helicopter view of their business because they are simply too busy.
Mr Kwarteng’s ‘Mini Budget’ last year produced a huge amount of additional work for mortgage advisers at the very time the regulator was asking them to develop their Consumer Duty implementation plans.
Many will still be reeling from the additional workload and may not have been able to dedicate the resource required to look at the new rules.
But do bear in mind that outcomes such as Price and Value will fundamentally affect the way remuneration should work.
If a firm is charging a fee for giving advice on say a term assurance, for Mr. Smith and Mrs. Jones and they both need the same amount of cover, you should think carefully about those charges and be in a position to justify the fee, as the key driver is the charge should be driven by the cost to deliver that advice.
If one was a ‘vanilla’ £500k life case as opposed to a Key Man or Relevant Life case, where more work was required to write it, then in theory one should attract more remuneration than the other.
In the case of a mortgage, for example, again Mr Smith and Mrs. Jones both need the same amount of mortgage, however you could charge Mr Smith more than Mr. Jones if he was taking an offset mortgage where the adviser was building in more reviews for that product, than Mrs. Jones’ two-year fixed rate deal, which may not be reviewed over the course of the term at all.
In the investment space, Mr. Smith and Mrs. Jones both want to invest the same amount of money, but the adviser could charge Mrs. Smith more because her investment was going into an AIM-listed investment as part of inheritance tax planning, where more time, research was needed to provide that advice than for Mr. Jones who needed a vanilla stocks and shares ISA.
Although most of this would make sense to most it does show that in one area such as Price and Value there are potentially a huge number of connotations as to how processes may have to change and how the implementation plan needs to look, when and if it becomes scrutinised by the regulator.
The implementation plan itself can be a valuable road map as to how a firm will deal in all situations and interestingly some PI insurers are now asking for copies of the plan in their assessment of premiums.
The key message is don’t ignore the implementation and seek help to get the plans done if you need to.