In today's financial landscape, the role of financial advisers is more critical than ever. As consumers navigate complex investment decisions and seek expert guidance, it is essential for advisers to fulfil their responsibilities towards their clients.
To that end, the Financial Conduct Authority (FCA) has said that it expects Consumer Duty to improve outcomes for consumers in all areas of business. The Duty – measured against four key outcomes – will mean consumers should get communications that they can understand, products and services that meet their needs and offer fair value and receive customer support when it’s needed.
While Consumer Duty isn’t – and shouldn’t – be a complete rewrite of the rules (the emphasis on putting the customer or client first should be nothing new for most advisers), it does means that advisers must now demonstrate how they put their clients’ needs first and build the Duty into their culture.
But behind the theory, advisers must interpret the requirements and build them into every step of their day-to-day financial planning process to ensure they effectively meet the FCA's four outcomes to promote trust, transparency, and positive outcomes for their clients.
Products and services
The first outcome of the new Consumer Duty requires that products and services must “meet the needs, characteristics and objectives” of the target market – in other words, advisers need to ensure that any products or services that they recommend are suitable for the individual circumstance. By ensuring that only the most suitable products are recommended, advisers can avoid foreseeable harm and provide clients with the best possible outcomes.
Meeting the first outcome requires financial advisers to truly tailor their advice to the individual needs of the client. It is crucial to conduct thorough fact-finding and needs analysis to understand each client's unique circumstances, goals, and risk tolerance. This process can be aided by the use of technology to enable clients to input and update their own information or to bring to life potential future scenarios using cashflow planning and stochastic modelling.
Helping clients understand their financial situation and the variables that may change it with compelling cashflow plans will aid their understanding of why you have chosen a certain investment strategy to support them and how it will help them to meet their individual goals.
Selecting an investment strategy must be based on solid research and a clear audit trail of research and comparisons undertaken in order to make the recommendation and demonstrate that it is suitable.
By building personalisation into the financial planning process, advisers can be sure they are recommending suitable products and services that align with their clients' needs, ensuring transparency and avoiding conflicts of interest.
Price and value
The Price and Value outcome is focussed on one thing: that consumers receive fair value. To meet this outcome, advisers will need to clearly demonstrate that there is a reasonable relationship between the price paid for a product or service and the overall benefit that the client receives from it.
Advisers should clearly communicate their fee structure and any potential conflicts of interest to their clients and ensure that the fees charged are fair and reasonable for the services provided; avoiding any hidden or unexpected charges.
Software that helps advisers to calculate reduction in yield and ex-ante costs and charges are crucial here for evidencing that fair value advice is being achieved. Building their own firm’s fee structure into any cashflow projections will also help ensure they have communicated the impact of charges on their clients’ financial position in a clear and transparent way.
The third outcome says that advisers are now required to ascertain that clients are equipped with materials that fit their specific needs. For this, communications should be tailored to each customer, including any characteristics of vulnerability. Clients like to receive information in different ways but for many, a secure, digital client portal and messaging capability provides an easy-to-use form of document exchange with their adviser.
Advisers should avoid complex jargon and explain information in plain language, enabling clients to make informed decisions. It is essential to cover all relevant aspects of products or services, including risks, costs, and potential outcomes. They should also look to provide regular communication and updates to keep clients well-informed. Using software that allows for some flexibility in format of reports being produced for clients is key in aiding each client’s understanding of their financial plan, investment strategy and ongoing performance.
One area which is only now developing in terms of consumer understanding is the field of ESG. By using a questionnaire that helps clients understand what sustainability means for them in their everyday lives, advisers can help them also understand how that has impacted the investment recommendation.
Customer service should enable consumers to realise the benefits of the products and services they buy and ensure they are supported when they want to pursue their financial objectives. This means that advice firms should consider how they support and service their clients; ensuring that processes and systems are straight-forward, easy to use and enable clients to disclose their needs and vulnerabilities.
This highlights the need for continuous support and service throughout the client-adviser relationship. Financial advisers should establish a framework for ongoing monitoring, periodic reviews, and proactive communication with clients. This includes regular assessments of the performance and suitability of recommended products, addressing any changes in clients' circumstances, and providing additional support or guidance as needed. By maintaining open lines of communication and demonstrating a commitment to client welfare, advisers can foster long-term trust and loyalty.
Setting up the infrastructure in their firm to ensure they are alerted automatically of any key events affecting client investments is crucial and investment research software can help with this. Similarly, being able to compare forecasts and add life changing events to a cashflow plan to show impact is essential.
The principles of Consumer Duty should not just be seen as a regulatory requirement but also a moral obligation to provide clients with the best possible advice and service. However, advisers already do many of these things in practice day to day. What will become more crucial moving forward is how they build they ensure the requirements are in every step of the financial planning process and that they can evidence that with ease.
To help smooth the path FE fundinfo has been exploring and developing solutions via its Financial Advice Hub products – which comprises FE CashCalc, FE Onboard, FE Analytics and FE Investments – to help support financial advisers navigate the FCA’s Consumer Duty expectations and evidence how they are meeting them.
Following a recent integration launch between FE CashCalc and FE Analytics – as well as the addition of new Value for Money fields and Assessment of Value documents to FE Analytics – the Financial Advice Hub is well placed to help financial advisers address the four Consumer Duty outcomes.
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