Consumer Duty and fair value: where are you now?
First published last year, the FCA’s
First published last year, the FCA’s strategy for 2025 highlighted three main areas for improvement over the next few years: promoting competition and positive change, setting and testing higher standards, and reducing and preventing serious harm.
And given the economic challenges we’ve seen emerge across the UK over the past 12 months, it’s no surprise that the latter aspect has been taking much of the regulatory limelight since then. The FCA also confirmed it will be focusing much of its harm reduction efforts on the intrinsically high-stakes area of retirement advice over the next two years.
Wealth and Investment Management firms are expected to pay special attention to risk management, oversight and adviser conduct expectations, with the reiteration that all advice provided should address the customers’ needs and goals.
Taking this point further, another key aspect that firms can’t afford to overlook is ensuring thorough and transparent Disclosure of terms and conditions – for both the nature of the advice being provided and charges involved.
These aspects are clearly central to the FCA’s Consumer Duty agenda and represent a recurring theme in the regulator’s approach to fair treatment and vulnerability in recent years.
Why is the FCA concerned about Disclosure?
Over the past few years, the regulator has become less vocally concerned about the level of suitability of advice than it once was: the most recent FCA review from May 2017 found that over 93% of financial advice was generally suitable.
Yet, one aspect the regulator has repeatedly flagged as needing improvement is firms’ Disclosure of key facts to consumers about the services they offer. Indeed, the same review found that barely more than a half – around 53% – of cases were compliant with the Disclosure regulations, with more than 41% falling short of the standards the FCA expects.
The most pressing area of concern was initial Disclosure, specifically charges and fees. For example, are you disclosing ex-ante or ex-post charging correctly? And does the customer understand the charges?
The study also found that many firms were using charging structures with significant ranges that, in some cases, obscured the full cost of the service. Others were disclosing an hourly charging structure, but not providing estimates of the time each service was likely to take – making it difficult for consumers to understand the full costs involved from the outset.
Disclosure and Consumer Understanding
Crucially, 2017 wasn’t the first time the regulator expressed concerns regarding the transparency of consumer charges. In fact, the FCA has sounded the alarm on this topic from as early as 2006 – and Disclosure was later highlighted as a key issue when the Retail Distribution Review was brought in over a decade ago in December 2012.
And since the FCA considers Disclosure of pricing to be a key element of effective customer support – with the 2017 report highlighting its ‘important role […] in supporting customers to make informed decisions about their financial affairs’ – this is clearly an area firms will want to focus on to ensure they’re achieving the Customer Understanding outcome of the Consumer Duty ahead of the 31st July deadline.
Similarly, it’s also worth noting that the FCA wants to see greater clarity from firms over whether they’re providing customers with independent or restricted advice – and in the latter case, the scope and nature of the restrictions.
After all, part of empowering customers to choose their own path towards their goals means letting them know at the outset whether certain types of products or providers will be off the table.
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