It’s only been a handful of months since the requirements of Consumer Duty came into full force and in an ever-evolving landscape of financial advice, the values and meanings behind the new regulations are not only more prominent than ever before, but arguably, more important.
The third pillar of Consumer Duty revolves around ensuring that clients are not only well-informed but also equipped with materials that are tailored to their specific needs.
The cornerstone of the third pillar of Consumer Duty is the recognition that one size does not fit all when it comes to communicating with clients.
Financial advisers must make it their priority to understand the unique needs and preferences of each individual they serve. This includes recognising any characteristics of vulnerability that a client may have, which may require even more specialised communication strategies.
One effective tool in achieving this tailored communication is the use of secure digital client portals and messaging capabilities. These digital platforms provide clients with a convenient and user-friendly means of exchanging documents and information with their advisers.
Such accessibility fosters an environment where clients can easily access and review their financial information, promoting transparency and trust.
Plain language and comprehensive information
We’ve heard it time and time again, but it still remains an issue. Financial jargon can be a significant barrier to consumer understanding.
Advisers have a crucial role in simplifying complex terminology and presenting information in plain, easily comprehensible language. The aim is to empower clients to make informed decisions about their financial future.
Furthermore, advisers should ensure that clients are well-versed in all aspects of the products or services being offered. This includes a comprehensive understanding of associated risks, costs, and potential outcomes. Clients must be equipped with the knowledge necessary to evaluate the implications of their choices fully.
Regular communication and updates
Keeping clients well-informed is not a one-time task but an ongoing commitment.
Financial advisers should maintain a channel of communication that provides regular updates on the status of a client's financial plan, investment strategy, and – indeed – performance. This continual dialogue ensures that clients remain engaged and informed, allowing them to adjust their financial strategies as needed and stay active participants rather than passive observers.
One valuable tool for achieving this is the use of flexible reporting software. Such software allows advisers to adapt the format of reports to cater to the specific needs and preferences of individual clients. By tailoring reports to be more accessible and understandable, advisers can enhance consumer understanding and engagement.
The emerging role of ESG considerations
In recent years, environmental, social, and governance (ESG) considerations have gained prominence in the world of finance. ESG factors encompass a wide range of issues, including environmental sustainability, social responsibility, and corporate governance. Clients are increasingly interested in aligning their investments with their personal values and ethical principles.
Advisers can play a pivotal role in assisting clients in understanding the impact of ESG considerations on their investment recommendations. One approach is to utilise a questionnaire that helps clients evaluate what sustainability means for them in their everyday lives. By exploring their values and priorities, advisers can better tailor investment recommendations that align with their clients' ESG preferences.
Furthermore, advisers can educate clients about the potential risks and rewards associated with ESG investments. This includes discussing how ESG factors can influence the performance of specific investments and portfolios. Providing clear, transparent information about the implications of ESG choices empowers clients to make investment decisions that align with their values while also meeting their financial objectives.
Overall, the third pillar of Consumer Duty in financial advice revolves around enhancing consumer understanding. Advisers must prioritise tailored communication, plain language, comprehensive information, and regular updates to ensure that clients are well-informed and empowered to make informed financial decisions.
Additionally, the emerging importance of ESG considerations adds a new dimension to consumer understanding, as advisers assist clients in aligning their investments with their values.
By adhering to these principles, financial advisers can build trust, foster transparency, and ultimately provide clients with the tools they need to navigate their financial journeys successfully.
Stephen Mitchell, Head of Adviser Product Strategy, FE fundinfo
This article first appeared in Professional Adviser on 21 November 2023