RESTRICTIONS LIFTED?
David Ryder
21 February 2024Consumer Duty has introduced a harsh spotlight to many aspects of financial services, not least a firm’s culture, it’s charging structure and the breadth of products it recommends to clients. The Financial Conduct Authority (FCA) has made it clear that the Consumer Duty is intended to make firms think and behave differently to how they have in the past. It is there to facilitate a move away from process and sales driven environments to a landscape where the customer is at the centre of everything a firm does, ensuring all customers receive good outcomes from their interaction with their adviser.
As we all probably know by now, this is a step change but, what if you’re not in control of that change? What if some of the decision making is out of your hands and, perhaps more significantly, what can you do if you or your clients don’t agree with some of those decisions?
The answer in a great deal of cases is “not a lot”. Now, this has been ‘ok’ for a long time as certain business models, particularly those providing advice on specific products and activities, have been hugely successful commercially, both for the principal organisation and the firms who operate within. Firms who sit within this environment often benefit from a tried and tested framework of research, compliance, back office support, software and training, allowing the firm more time to focus on advising clients. As a result, clients have been well served. However, under the Consumer Duty, these models are being tested against different criteria and, in some areas, the models are being found wanting.
Interestingly, whilst often making it clear that they are not a ‘pricing regulator’, the FCA have started to become more vocal in this area as part of their Consumer Duty guidance. Part of a good outcome for clients is fair value and the FCA have raised the narrative as regards the level of charges that some firms are applying, including the levying of early withdrawal charges in certain circumstances. They have also mentioned how firms should be able to justify percentage charging, and a real ‘hot potato’ for the Regulator is where a client is paying for an on-going service and this is either not understood by the client or, worse, is not being delivered by a firm.
The thing is, clients are becoming more savvy and aware of these things. Consumer Duty is very much in the layperson’s domain and some clients are becoming more confident, wanting to know and understand more about the charges they are paying and questioning the services they receive for this. In addition, less than positive fund performance, especially in the midst of a cost of living crisis, can raise levels of customer dissatisfaction, but the ability to quickly pivot to another solution is very often out of the adviser’s hands within certain business models.
So, with the introduction of Consumer Duty, this could be a good time to reflect and think carefully about how your firm is meeting the new requirements. How comfortable do you feel about the ability of your firm to measure up? What could, or would, you like to do differently? If your response to these questions is vexing you, then maybe now could be the time to consider taking full control and striking out on your own as an independent adviser.
Taking the journey to direct regulation is certainly more involved than it used to be, with more intensive scrutiny now being undertaken by the regulator at the application gateway to ensure all firms are correctly structured, staffed and culturally focussed on ensuring good customer outcomes. However, with the right support, the road to direct authorisation need not be a bumpy one. That’s not to say that you can simply get someone to complete the application for you, as you need to fully embrace and understand your firm from the bottom up and set the right cultural tone from the top down. However, if you are already seriously considering a move to direct authorisation, then it’s likely that your cultural compass is already firmly pointing in the right direction.
To strike out on your own is not a process to be taken lightly and it is not for everyone. You will need to consider all aspects of running your business and take responsibility for all that goes on. For some people this will be a scary thought. For others, it could ignite a dormant desire to take ownership, establish autonomy and provide a customer focussed vision to your clients where you continue to build really close and strong relationships, maintaining a level of trust that absorbs into the generations that follow and for whom you want to deliver the very best.
Also, don’t forget that you do not need to be alone in getting there. There is lots of support available and a good compliance consultancy can provide a vast amount of material, guidance and hand-holding to steer you from start to finish. The Association of Compliance Consultants (APCC) can be a good starting point to find such support.
So, as Consumer Duty starts to embed and firms begin to adapt to life under the duty, where do you sit? Are you happy there? Perhaps more importantly, are your clients happy there? If the answer is not immediately a positive one, could now be the time to consider lifting those restrictions?
Paradigm are here to help and can support you through this process; please don’t hesitate to get in touch and to ask any questions that you may have. We would be delighted to hear from you and discuss your own firm’s particular requirements in order to understand how best we can assist. Please don’t hesitate to contact the Paradigm team at [email protected] or call us on 0161 486 4890.
