Clive Waller: Consumer Duty? Motherhood and apple pie – Money Marketing

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Many areas of regulation have failed, and the FCA believes another over-riding set of principles will change all that
I was at a conference recently where an excellent speaker laid out the necessary action to be taken by providers and advisers on the Consumer Duty.
During question time, a very senior independent financial adviser asked simply: “Will it do any good?”
The speaker smiled and said: “Probably not!”
Do you remember this statement? “All firms must be able to show consistently that fair treatment of customers is at the heart of their business model. Above all, customers expect financial services and products to meet their needs from firms they trust.”
This wasn’t last week. The Financial Conduct Authority first published it in 2015. It clearly did not work.
Spot the difference
I struggle to understand the difference between ‘Treating Customers Fairly’ and ‘the Consumer Duty’. I have written before about the huge cost and the serial ineffectiveness of much regulation, and the ensuing consumer detriment. I am not convinced the Consumer Duty will be any different, sadly.
TV buyers need to know the TV works. The same applies with financial products
In describing the new regulation, the FCA says: “It will mean that consumers should receive communications they can understand, products and services that meet their needs and offer fair value, and they get the customer support they need, when they need it.”
I suspect (in the same order), that they won’t, they will (in most cases), they may and they may (but only from the adviser).
The regulator adds: “With firms assessing how they’re meeting their customers’ needs, the FCA will be able to quickly identify practices that don’t deliver the right outcomes for consumers and take action before practices become entrenched as market norms.”
If the FCA is able to identify practices that don’t deliver the right outcomes, why didn’t it foresee the defined benefit transfer scandal in 2015? Many did.
We will see another layer of work and costs that will be paid for by the customer
It goes on: “The duty will include requirements for firms to: end rip-off charges and fees….”
The regulator has been attempting to achieve total transparency on fees since 2012, as I recall (yes, that was as the Financial Services Authority). It is still impossible for most to compare total costs for a portfolio.
Recently, I judged the best discretionary fund manager for an awards event and was staggered at the diversity in attempts to disclose charges — or not. For me, charges are the biggest factor in investment. I am not saying cheapest is best; it may not be. But in terms of an investment portfolio for the mass affluent it is hard to argue against a cheap index tracker.
Client needs
When it comes to advice, it depends on what the client needs. If your needs are complex, do not expect cheap.
Conduct-of-business rules demand that an adviser understands the product they recommend. This is a high hurdle given the complexity of many investment products.
However, the Consumer Duty expects the industry to: “Provide timely and clear information that people can understand about products and services so consumers can make good financial decisions, rather than burying key information in lengthy terms and conditions that few have the time to read.”
I really hope the Consumer Duty provides the desired outcome. I doubt it will
This is rather like legislating that TV manufacturers ensure buyers know how TVs work. For goodness’ sake — they do not need to know. TV customers need to know the TV works. The same applies with financial products.
Unless we ban shorting, derivatives, hedging and many other practices that are everyday in fund management, there isn’t a hope. Some may believe we should.
Whilst the aims of the Consumer Duty are laudable, it seems to me to be motherhood and apple pie. The reality is many areas of regulation have failed, and the regulator believes another over-riding set of principles will change all that.
Unwelcome consequences
Regulators continue to fail to see the unintended consequences of the action.
We will see another layer of work and costs that will be paid for by the customer. Providers will see how they can gain competitive advantage from the regulation. Compliance managers will continue to warn of the dire consequences of not taking their detailed advice.
Conduct-of-business rules demand that an adviser understands the product they recommend. This is a high hurdle
I really hope the Consumer Duty provides the desired outcome.
I doubt it will.
Clive Waller is managing director of CWC Research
This article featured in the September 2022 edition of MM. 
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There are 11 comments at the moment, we would love to hear your opinion too.
Well dsaid Clive. Although I have often wondered why one would need an adviser for a tracker fund. I would have thought these were ideal for DIY and of course in this case DIY cuts out another layer of cost. Yes, I know – planning is important, but in the end it boils down to portfolio construction.
Which index? Does equity exposure remain appropriate indefinitely? In what proportion? Might the client appreciate some commentary on the outlook for equities? And so on…
At what cost?
That’s a matter for discussion between the adviser and client.
Yep…what he said.
As with any regulation it all comes down to enforcement. So, if the FCA wants to see some change, and it sounds like they do, then they will have to do some proper enforcing! But, have they really got what it takes to do it? Only time will tell.
More enforcement to the FCA is just slapping people with more S166’s …remember the arrow visits ?
I take it you have never been asked by the FCA to do a skilled persons report via a S166 ?
I still have a draw full of medication as a reminder of my innocence and the toll it took to prove it !!
They just need to do their job in the remit that was given ….
I’ve just received a text from a friend informing me that he sneaked into today’s Financial Services & Markets Bill debate. City Minister Richard Fuller stated that the government is planning to grant itself an “intervention power” over regulatory decisions (by the FCA).
The regulator wants us to know what “right” looks like ….
Easy peesy lemon squeezy on mums apple pie !!!
What could go wrong ?
Here’s one way to explain ‘consumer duty’ that even a regulator might understand. Think of a 4-engined jet certified to fly transatlantic routes. Forcing airlines and manufacturers to up it to a 6-engined jet won’t make it any safer. It’ll just increase the cost of the plane and the ticket cost for every passenger. Then insist that a single-engined light aircraft has two more engines fitted with no other mods. It won’t even get off the ground. The big firms are the 4-engined jets, and the small firms like mine are the singe-engined jobs. Consumer duty will no doubt create more jobs in compliance and regulation, but hey, that’s what really matters, right?
Indeed Neil
But you forgot to mention the scammers and feckless all fly Tornado’s, MIG’s and Euro fighters, carpet bombing.
They ground and micro manage us, then continue to moan …we can hear the scammers and feckless over head but we cant see the buggers let alone catch em !!
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