4th March 2024

Consumer Duty – An Opportunity to Earn Trust

Financial advice professionals have known for years that their professional reputation is everything. As we head toward Q2 2024, they must now embrace Consumer Duty as the catalyst to continue consumer trust.

A quick search on the internet uncovers several surveys that over the last few years have warned the sector of the extent of the reputational problems it faces.  The most authoritative is the FCA’s “Financial Lives” survey, which found in 2022 that only 58% of advised clients had high levels of trust in their financial adviser, * whereas 42% of advised clients did not completely trust their adviser!  Data tracking perception of financial advice amongst the non-advised is much more damning.

Typical responses to this type of data by advice professionals are often dismissive or brushed aside as legacy issues and a hangover from the days when banks were involved in regulated advice, and the most recent PPI scandal. However, the SJP debacle has thrown a spotlight on how the issue of trust can affect the most respected firms. 

Consumer Duty, which came into force last July, has required firms to review whether they provide good value to their clients, as well as deliver broader outcomes such as support and effective communications.  Many firms have identified the risk of being non-compliant and responded quickly by reviewing charging structures (‘Over a third of adviser firms (37%) have changed their fee structure as a result of completing the Consumer Duty fair value exercise.’ Royal London survey, November 2023).  In making these changes, firms potentially ensure they are compliant, however, there is much more that needs to be done to restore trust.  

Looking at the plight of SJP, what started as a rebuke from the FCA has resulted in a collapse in their share price and a potential complaint bill from clients for unfulfilled ongoing advice of £426m. What has befallen SJP could easily befall other firms.  

In June 2018 The Telegraph ran the headline ‘Ambulance chasers move from PPI to savers who have cashed in final salary pensions’.  It’s not unrealistic to envisage similar headlines in June 2024; ‘Ambulance chasers move from final salary schemes to non-delivery of ongoing advice’.

Maintaining trust in the retail investments sector is therefore going to be vital for the sector to thrive.  The responsibility for this should sit equally with fund managers and distributors.  It is easy to blame the challenges we face on the FCA and Consumer Duty.  However, in truth, Consumer Duty could be the catalyst the industry needs to boost trust. Collectively we need to better understand the end-investors that we serve.  To understand whether they believe we are delivering good outcomes is central to this understanding.  As is identifying being able to identify different cohort needs, especially the vulnerable.

The retail investment sector is arguably the hardest sector to generate this type of data.   The solution seems to lie in a mutually beneficial collaborative approach, whereby fund managers and intermediates come together to generate accurate and reliable feedback from end investors.  Fund managers and distributors are already collaborating to meet other Consumer Duty requirements, through work done on fair value assessments and through the Distributor Feedback Template initiative.  Coming together to generate customer feedback should be the obvious next step.

Panacea Adviser are working alongside FWD Research, speaking with fund managers and intermediaries to make this happen and we will keep our community updated as developments unfold. Only together can we develop a sector-based solution that meets the unique needs of our industry, ensuring advisers not only meet regulatory requirements but also demonstrate their unwavering commitment to delivering positive outcomes for their customers.

*Financial Lives 2002.  Question: Adv_D18 (Rebased). How much did you trust this adviser/ firm? Base: All UK adults who have received regulated advice in the last 12 months (2022:1,100) 

Business Development, Regulation, Panacea Comment