Prior to Consumer Duty, there were general principles including Treating Customers Fairly (TCF), alongside specific rules on certain aspects detailed in Financial Conduct Authority (FCA) handbooks, but no general principle covering the service that customers receive.

While the FCA’s attention has been on other areas, most notably price and value, it’s only right that in time, attention will turn to consumer support. Complaints relating to customer service continue to dominate other areas in terms of volume, and financial advisers remain frustrated with the services being offered by platforms and other product providers.

So, what are the key areas that wealth firms need to consider when they look at customer support, and have changes that have been made in the industry going to provide a rosier picture as they bed in?

Transfers

It is easy to sound like a broken record when it comes to transfers, but time and time again, when we look at where complaints come from, and where advisers spent an inordinate amount of time, the answer comes back as transfers.

Why transfers? It’s a combination of factors – including time taken, expectation management and communication. Some things can be done to decrease timescales by improving delivery of the key stages of the transfer or ensuring the customer and / or the adviser get updates regularly about progress. But this is just tinkering around the edges.

If ever there was a need for a new approach to tackling a problem, then transfers is surely it.

Consumer Duty is changing the mindset at firms – with senior leaders becoming much more involved in the key areas where consumers are being let down, and are challenging the status quo.

Digitalisation

Although considerably late to the party, wealth management has gone through most of the pain of joining the digital world.

But has this digitalisation of the wealth industry actually delivered a better experience for customers?

Customer satisfaction scores and other metrics, such as complaints, have not significantly improved. To a certain extent, this is down to customer expectations.

While the wealth management world may have delivered digital services, they have delivered them 10 years behind other industries, and as a result, the consumer has moved on by the time anything gets delivered. In other words, wealth management is offering the consumer what they had in other areas of financial services, or online retail in 2014.

Digitalisation has not meant customers have more access and more information. They may have one or the other, but in general, firms have not created a better experience for customers. For many, being able to talk to a human is still vital, but has been put behind more barriers, such as chatbots. Barriers have also been put in the way of people who want to access digital but may have specific queries before they take an action, or aren’t able to instruct due to limitations in the digital experience.

Consumer support demands that firms take another look at this. There are some areas where firms are taking a lead, including on customer journeys, where they understand how channels can join together to provide a better experience.

Furthermore, how do firms create a more available service? Customers need to find the support they need, when they need it and in their preferred method.

Businesses need to recognise that the world has changed. The way consumers access services continues to evolve, and firms need to be pro-active in adapting to this.

Service delivery

Customers aren’t willing to accept things like delays, errors and lack of customer service anymore.
Too few firms within wealth management have woken up to this fact. The problem is going to get bigger as new digital-savvy customers start to accumulate savings and pensions, and become more active in their investments.

Firms waking up to this is taking longer than expected. Consumer Duty has mandated firms to look at their service delivery, but the reality is that many aren’t using it as an opportunity to really challenge what they define as good levels of service delivery.
Companies risk losing customers to new entrants, and potentially to other sectors within financial services.

Conclusion

While it is expected that the FCA attention to be on some specific areas of consumer support, the impact of that attention is likely to be a wider cultural shift in what is expected from the delivery of services within wealth management.

Initial Consumer Duty implementation may well have focused on getting the metrics correct, but the next step should then be on understanding how and where these metrics need to be improved for the benefit of customers.

As the dust settles on the first year of Consumer Duty, firms need to be ready for the next phase, which has already begun in terms of the FCA enforcement of the rules in regard to price and value. The next phase may provide a greater focus on consumer support and what is required to deliver good outcomes in this space.

By Dom House, lead consultant at Simplify Consulting

While 2022 offered a full-year dividend of 52.78 pence per share, this year will result in 23.83 pence per share, a 54.8% decrease. The board also announced that in the future, annual distributions will be 50% of the full year underlying cash result, set at 18 pence per share for the next three years.

The £426m pre-tax provision is in response to a “marked increase” in client complaints regarding their ongoing service. SJP started an assessment into the need for refunds due to this ongoing service, and found the “evidence of ongoing client servicing was less complete in the years preceding investment into [its] Salesforce CRM system in 2021″. The findings resulted in the company upping its provisions for refunds.

In 2023, SJP announced fee restructures that will be put in place in the second half of 2025, which faced criticism within the industry, primarily for the amount of time it would take to put the system in place. The announcement followed the FCA’s consumer duty regulation which came into play on 31 July.

See also: St James’s Place net inflows halve as Jefferies lists stock as ‘buy’

A report from Citi highlighted the drop in its capital return policy: “H2’23 underlying cash came in 8% below consensus driven by the costs associated with an increase in client complaints. The post-tax result was also materially impacted by a provision for further potential client refunds linked to historic servicing levels.

“Although the dividend cut is not completely unexpected, it has gone further than we had thought and, when combined with the uncertainty surrounding the costs associated with client servicing complaints, we expect the shares to face headwinds today.”

SJP’s post-tax underlying cash result was £392.4m, down from £410.1m in 2022, which the company noted included a higher corporation tax rate for the year. For the year, SJP had net inflows of £5.1bn compared to 2022’s £9.8bn.

JP Morgan Cazenove wrote in an analysis report: “The size of the provision, paired with the downgrade in the capital return policy, will result in another major negative share price reaction, in our view.

“We expect that management will have to address a number of questions, including the one-off nature of the provision, additional regulatory risks, and the implications for future customer acquisition and relationship with the Partners.”

SJP CEO Mark FitzPatrick added in the results: “Overall, 2023 was a difficult year for SJP but we’ve faced into our challenges. We’ve raised our standards around both the delivery and evidencing of ongoing client servicing and we’ve announced changes across our business, including our charges structure, so that we’re in good shape for the future.”

This article was written for our sister title Portfolio Adviser

Were you to track regulatory changes over time, you would see a clear direction of travel. Aligning your suitability processes with this direction can transform meeting the rules from a burden to a competitive advantage.

You do this by shifting your focus from the letter of the laws – what they say: the isolated boxes to tick; to their spirit – why they exist: to ensure good client outcomes.

A focus on the boxes to be ticked rather than the reasons the boxes exist can lead to laws being technically followed at the expense of meeting the very outputs the laws are there to produce.

The spirit of financial advisory regulations is clear: to protect clients from bad investments, from unscrupulous salesmen, and even from the clients themselves. They aim to increase a client’s comfort and confidence with investing – to arm them with a greater understanding of what they’re investing in, and why.

The letter of the regulations says you must account for a client’s risk tolerance, knowledge and experience, and so on. But that’s not really what the regulations are after. Because it’s perfectly possible to ‘account’ for these in a counterproductive way.

See also: All I want for Easter is the findings of the FCA’s thematic review

For example, in its 2011 guidance, the Financial Conduct Authority (FCA) stated that they’d ‘reviewed 11 risk-profiling tools and were concerned to find that nine tools had weaknesses which could, in certain circumstances, lead to flawed outputs.’ And in its 2023 MiFID II guidance, the European Securities and Markets Authority (ESMA) spelled out: ‘In assessing a client’s knowledge and experience, a firm should also avoid using overly broad questions with a yes/no type of answer and or a very broad tick-the-box self-assessment approach.’

It pays to ask why these guidelines exist. Shouldn’t the rules themselves be enough, without requiring separate guidelines on how to follow them? The regulators would not have bothered releasing additional guidelines if the ways the risk tolerance and knowledge and experience boxes were typically ticked were good enough. The problem wasn’t what was being done, it was the way in which it was being done.

This is arguably even more apparent in the way Mifid II guidance and the Consumer Duty rules have incorporated the requirement to account for client behaviours. For example, the need not only to tell a client something but to take reasonable steps to make sure they have actually understood it.

We see something similar too with the new Sustainability Disclosure Requirements and their guidance to tackle greenwashing.

See also: Advisers have rich opportunity to treat investors more like humans, not robots

Problems of a checklist-focused approach to suitability

It is undoubtedly tempting to believe that methodologically extracting each requirement from the lines of legislation and ensuring they’re covered in some way will add up to a clean bill of regulatory health. However, this decontextualised line-by-line approach has some practical pitfalls:

1. It encourages ineffective upfront loading – Confirming the right level of investment risk for a client prior to investing is non-negotiable. But that right level is subject to dynamic change. Understanding of both the client and how they interact with their investments naturally grows over time. Outputs also decay. Of the main elements of suitability, only risk tolerance is broadly stable across time. Trying to get everything out of the way as soon as possible is effective for a checklist, but counterproductive for a client outcome.
2. It hinders client understanding – A client’s understanding of what they’re investing in (and why) is not helped by haste or volume, or by the lack of a clear link between information requested and its ultimate importance for them.
3. It leaves advisers playing catch-up – A focus on the letter of the law can leave advisers feeling like they’re playing a constant game of catch-up: tweaking processes, and bolting-on additional steps to meet each new requirement. However, reacting to regulatory changes is less efficient than anticipating them. A focus on the spirit of the laws should ensure that regulatory requirements are met as a side-effect of following processes designed for other purposes.

Future-proofing your suitability processes

It could be argued that all talk of ‘spirit’ is a bit unscientific, and no defence against a regulatory judge. This would be wrong. It is far more dangerous to rely on blind box-ticking with evidence only of the answer, not the process, or the reason, or what the question was, or why it was being asked.

This isn’t about abandoning the checklists in favour of assuming that if a client is comfortable then all is well. It is simply about where to angle your attention. To see that the best suitability processes focus less on acquiring client knowledge for the purposes of ticking boxes, and much more on how we use this knowledge in coherent suitability frameworks that reflect an understanding of what truly matters to investors.

In a speech given at a recent event hosted by KPMG, FCA executive director of consumers and competition, Sheldon Mills (pictured), set out the regulator’s latest stance.

“Firms have made solid progress in many areas of the Consumer Duty and the clock is now ticking for closed products and services to comply,” he said.

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“We are ready to work with industry on meeting the closed product deadline and urge firms to prioritise areas where there is the greatest risk of consumer harm.”

The deadline for closed products to come into line is July 31 this year. He urged firms not to “panic” and noted a lot can be achieved in six months to a year.

“We know some closed products may offer poor value,” Mills said. “In some cases, customers in legacy products might pay higher charges than they would for open products, where firms are competing for new business.

See also: Vanguard rolls out hub for UK advisers

“In all situations, firms must assess and be able to demonstrate, that their closed products provide fair value to customers.”

Mills concluded his speech on an optimistic note.

“Getting it right for consumers means higher standards and healthier competition,” he said. “It means improving trust in our sector, it means supporting growth and innovation, and it means boosting the UK’s competitiveness on a global stage.

“Competitiveness comes from being a beacon of high standards and fair value – and from entrenching consumer trust. This in turns attracts investment. The prize is huge if we can get this right.”

See also: FCA bans and fines former London Capital & Finance man over minibonds

In fact, a finish line has not even been marked out on the course. Consumer Duty was a key phrase used in 2023 but don’t think you’ll hear any less of it this year – if anything, it will be referred to more frequently.

With the Financial Conduct Authority having invested a lot of time and effort into the new rules, it is going to be looking very closely at how firms are putting consumers’ needs front and centre.

There was a lot of attention on Consumer Duty in the run up to the open book implementation date in July last year, but anyone who thought that marked the end of the race was mistaken.

The regulator is not afraid to hammer home its message that Consumer Duty is “not a once and done exercise” and I can understand why.

Keep on running

The regulator says consumers are already reaping the benefits of the changes made so far. These include the development of new data to measure outcomes, ensuring the right products reach the right customers and improving communication to boost consumer understanding.

But it wants to go much further. It hopes that with higher standards and more firms innovatively competing for consumers, we will see greater trust and confidence in markets which in turn will support economic growth.

FCA director of cross cutting policy and strategy Nisha Arora strongly hinted that we should all challenge ourselves on whether the implementation exercises that were carried out have “really delivered what’s needed”.

See also: All I want for Easter is the findings of the FCA’s thematic review

None of it should be viewed as a tick box activity. Instead, it needs to be reviewed on an ongoing basis.

While no medals will be handed out for this marathon, the regulator suggests “the prize is huge if we can get this right”.

It can be easy to get so caught up in the policy, process and system changes required by the Duty that companies risk losing sight of the consumers we are here to serve. It’s paramount that does not happen.

According to Arora, the Duty is an “integral part” of the FCA’s approach and mindset at every stage of the regulatory lifecycle from authorisation to supervision and enforcement. It is a “golden thread” that runs through all its work, so we can expect to keep hearing about it.

As we all line up for the start of this marathon, we must each interpret the rules of the race and apply it to our own businesses, customers and circumstances. The FCA will highlight good and bad practice along the route, but it won’t tell us what running style we should adopt or what trainers to wear.

See also: Defaqto launches Consumer Duty profiles

One thing for certain is the regulator is taking the Consumer Duty seriously and its message to firms is to do likewise. We will all need to try to keep up the pace and no doubt navigate a few hurdles and obstacles as we do so.

It is the regulator’s hope that the work we have all put in to implement and embed the Consumer Duty means we will spot problems before they arise. We have to take the initiative without relying on the regulator to tell us what to do.

But just because there’s no finish line in sight doesn’t mean we can’t all keep working on our personal best.

On your marks, get set, go.

Steve Owen is director of product management at Morningstar Wealth

This article was written for our sister title Portfolio Adviser