Using technology to deliver Consumer Duty
Richard Wake, Chief Customer Officer, intelliflo
When the Retail Distribution Review (RDR) loomed back in 2012 it was predicted that up to half of advisers would leave the industry as a result.
Although some advisers left the sector before the regulation took effect, the feared subsequent exodus didn’t materialise. However, in the ten years since RDR, FCA figures reveal that adviser numbers have increased only slightly from 35,000 in 2012 to 36,674 in 2022.
Now, following the implementation of another major piece of legislation impacting the sector, we’re hearing new predictions of mass departures. A survey by CoreData conducted in August, just after Consumer Duty came into effect, found that one in ten advisers are considering leaving the industry due to the new rules and almost a quarter expect it to have a greater effect on the industry than RDR. Nearly three-quarters believe the requirements will increase their business costs and 60% think that the cost of compliance will ultimately lead to increased fees and a further widening of the advice gap.
Increased burden
There’s no doubt that the Consumer Duty requirements place heavy demands on firms. This is due in part to the fact that it’s not a once-and-done challenge. Firms need to evidence on an ongoing basis that they are consistently delivering positive consumer outcomes in each of Consumer Duty’s four outcomes – consumer understanding, price and value, consumer support and products and services. This adds up to a sizable burden on firms. It also means that firms have to understand the various risks throughout their operation and at all consumer touchpoints.
Yet, possibly due to the broad nature of the reforms and the fact that they are aimed at the whole financial services industry, there have been suggestions too that some firms underestimated the changes required. A Schroders’ survey found in May, with just two months under the implementation deadline, that fewer than a fifth of advisers were fully ready for the new rules and 4% hadn’t even started preparations.
The tools for the job
Thankfully, firms that have already integrated technology into their proposition, from segmentation and processing client data to reporting and customer communications are well placed to ensure ongoing compliance. Technology is crucial to enabling advisers to meet the requirements under Consumer Duty. By extension, it’s key to helping firms satisfy the regulator while managing costs and easing the burden on individuals and units.
For example, risk profiling tools and cashflow planning software can go a long way to meeting the products and services outcome. By running target client scenarios that ensure the appropriate products and services are chosen, they allow for compliance-friendly evidencing of suitability. In addition, they provide the documentation needed to show that all advice given is suitable and personalised, helping meet the requirement to demonstrate on an ongoing basis how outcomes are being met.
Practice management systems and assessment software can also help advisers identify vulnerable or potentially vulnerable customers, an area the FCA is particularly focused on. Those tools bring the very added benefit of helping advisers monitor and document discussions relating to vulnerability, which can be complicated due to the often temporary and sporadic nature of client vulnerability.
Cashflow modelling tools also support the consumer understanding outcome. They offer clients a visual representation of how different choices will play out, encouraging deeper client-adviser discussions and improving their understanding of how today’s decisions can impact their medium- and long-term objectives. The markers in practice management systems are similarly vital to this outcome, providing vital information on how best to communicate with different clients and segments. Integrated practice management systems also give firms the ability to check that clients have received and understood the information sent to them, while client-facing tools such as client portals allow clients to access that information at a time and pace of their preference.
Client portals are among several tools that can help advisers more easily meet the consumer support outcome too. Clients using portals can take advantage of document sharing and e-signatures for quicker authorisation, bringing benefits such as more timely rebalancing of portfolios during turbulent markets. The additional security provided by client portals further enhances the capabilities needed to meet this outcome.
In the price and value outcome, integrated technology can contribute to ensuring cost and disclosure information is appropriate for each client segment and presented in a way that can be easily interpreted.
Using the right technology makes it much easier for firms to align with the Consumer Duty rules, helping to improve efficiency, reduce costs and allow advisers the time and space to focus on the activities that clients value most.