Consumer Duty Outcomes: Four Key Tests
The FCA’s new Consumer Duty regulation poses strong threats and opportunities for pension providers and adviser platforms in the UK. Consumer Duty aims to improve outcomes for end consumers by increasing the level of care that firms must provide, ensuring that firms “compete vigorously in consumers’ interests”.
Consumer Duty Outcomes
These expectations take shape in four key Consumer Duty outcomes:
It is of increasing importance for customers to have easy access to key financial product information. By the time the new Duty gores live at the end of July, providers must have systems in place to ensure that their customers have read and understood financial products’ key features and charges. These documents need to be easily accessible, understandable and ideally comparable with competitor offerings.. As customers often make complex choices regarding anything from debt levels to mortgages to pension savings on a smartphone, having a painless digital journey to retrieve this information can only aid customers in making better informed decisions.
The FCA is most likely to be impressed by firms that embrace the idea that they should know who is actually reading their communications. It’s not enough to know what proportion of your customers open their Annual Benefit Statement, you will need to know their names as well. Electronic delivery lends itself to this. It also enables providers to switch communication channels once they have detected which clients appear not to be engaging with documents being sent to them. It might be about finding the time of day and day of the week that a specific group of hard to reach customers are happy to engage with their pension. Even the busiest parent has little downtime, so finding out when that is might help in terms of ensuring key documents are read and understood.
SUITABLE PRODUCTS AND SERVICES
The FCA still sees consumers being pushed into high risk investments, unaffordable high cost credit and unsuitable debt products that do not meet their needs.
Firms need to make sure they are offering all types of customers the right products at the relevant stage of their life. If they are over saving for retirement and are set to trigger unwanted tax penalties at decumulation we need to be prepared to flag that up and offer alternative savings products and strategies.
In the Consumer Duty: A Recipe For Change whitepaper, Dunstan Thomas outlines a Financial Health Dashboard tool, which can provide an accurate, holistic view of a consumer’s entire savings and investments portfolio. This data could be shared with a provider for the purposes of completing eligibility and Fact Find journeys before being onboarded to a new product.
Ultimately, consumers want their problems solved quickly and effectively. They want to receive support that meets their diverse needs. The FCA will expect firms to ensure customers are supported throughout their relationship with them. They need to consider the best ways to engage, including both digital and paper-based communications where appropriate.
The FCA wants to stimulate more competitive financial product markets in which it is as easy to switch, cancel or register a complaint about a product or service.. The regulator will also tighten monitoring of exit fees and transfer speeds to ensure they are reasonable if consumers do decide to move their money elsewhere.
To borrow a concept from the online shopping world known by web designers as an ‘abandoned basket’ or cart intervention - technology can be set up to track customers that have picked up their pension plan online, looked at it but then put it down again without deciding on any action plan.
Once identified, these consumers can be sent a time-limited special offer, and you’ll be amazed how often even a small incentive prompts people to go back and complete a task, whether that be topping up your pension contribution following a small pay rise or auto rebalancing of your investment portfolio.
Evidencing fair value is a critical part of Consumer Duty regulation. This vital consumer outcome measures the benefits the consumer receives compared to the price that they have paid. For example, a firm lending to a customer group with high credit risks would need to satisfy themselves that the inevitably higher charges associated with this lending still reflect fair value and illustrate discernible benefit for the target group. However, this is a difficult outcome to measure – what constitutes fair value? In its ‘Consumer Duty, A Recipe For Change’ whitepaper, Dunstan Thomas outlines its ‘Pensions Value for Money Tool’ which automatically pulls in key values which will help optimise a customer’s retirement income.
These would logically include:
- Investment Growth
- Total costs and charges
- Decumulation preferences