Consumer Duty – What have we learned so far?

“We’ve had to look at things like our products, our services, the communications we have and the fair value. So that’s been at the heart of the work that we’ve done over the 12 months or so that we’ve been working on this. If I had to kind of summarise it in just a few words, it’s been intense. I would say it’s been demanding just in terms of resource and thought, but actually very, very positive because it’s setting a higher bar than we’ve had before. I think we’re now doing things better than we were before. It’s not saying we’re doing everything perfectly well. We know that’s not the case. In terms of lessons that we’ve learnt, clearly there’s an absolute focus on it being led from the top… we’ve looked at more than 300 products.”

“So there’s a huge amount of work testing those for things like fair value. Are they delivering the right outcomes? We’ve done a lot of work on testing communications. So, do customers understand what we’re sending to them?”

“We’re using things like AI now to improve just the way we write some of the communications. We will have developed and improved a kind of tone of voice that would reflect what we want to put across. And now we’ve got AI tools that enable you to put in pretty much any document you have or a letter that you want to write.”

“We can’t lose sight of the impact of vulnerable customers. So our own processes have changed. We’ve got a range of Consumer Duty champions and customer vulnerability champions across the organisation now. So our structures I just think are better adapted to that. And we’ve done a lot in terms of training.”

 “If I look back over the last 12 months and what’s made the biggest difference to what we do is just what we’ve called crudely empathy training. So we’ve had thousands of staff go through empathy training that goes beyond just meeting the nuts and bolts of the job to how do we better understand where customers are coming from and work with them.”

“So we’ve had mandatory, as you would expect, compliance training, Customer Duty training to some 4500 people. We’ve had to improve the reporting we have, because we need to be able to evidence that the product structures we’ve got in place are. Give good value, give the right outcomes, give good outcomes to customers at the end. So the level of reporting is again just another level to that which we all have had historically.”

“I think overall, that there’s been a kind of focus on trying to simplify language on improving the data that we’ve got and training the people that we have. Those three are probably the largest impacts that we’ll have seen.”

“We’re seeing a lot of focus on advisors demonstrating how they’re doing that and relooking at their back books, if you like, relooking at how they bring protection into the conversation, then they’re looking at ensuring that customers really do understand what they’re taking and linking with us in order to help do that. So making sure customers really understand what they’re doing when they’re going through the advice process and advisors. We’re seeing increasingly keeping in contact with customers in order to make sure that’s the case.” 

“So what are we seeing with regards to the last 12 months? Well, the macroeconomic environment has been pretty challenging with regards to some of the advisors out there. You can see that we’re looking at the types of elements that they might be taking into account with regards to their customers. How is client affordability impacting customers? What’s their budgeting being like?”

“With mortgage specialists in particular, you can show that the impact of rising interest rates and cost of living was impacting them quite a lot and along with some of the others as well.”

“There has also been a refocus on existing customers. So whilst advisors have been excellent over the years in terms of focusing and keeping in contact with their customers, as we know with Consumer Duty, it’s not a once and done. And advisors have really realised the importance of keeping in contact with customers, making sure they’re checking in, ensuring that they’re developing themselves with regards to the best ways in doing that and putting processes and planning in place with regards to help with that.” 

“They’re building up a nice relationships and obviously mutually beneficial relationships for the firms and customers in order to make sure that that is going in the right direction. The Consumer Duty in terms of review frequency, I think has had a positive impact for customers as well. And advisers are ensuring that they’re finding reasons to review customers.”

“Over the years, price hasn’t always been the number one spot. But over last year, the last cohort, the tail end of 2023, price took the number one spot for the first time. Okay, now that’s probably a nice focus and link in with value. Value for money. Because we’re all focusing on value for money. We’re making sure that customers are getting that, and we’ve got that top of our minds all the time.”

“We know that those recommendations are more than just price. I think on the back of the Consumer Duty advisers, it’s just helping them focus on what they do well, what they experts in how they because we know they’re brilliant at relationships. We know advisers are great at that type of thing. But also I think it’s enabling them to look at some of those other areas that help them, that help them select the providers out there for their clients.”

“39% said consumer understanding was the biggest challenge. I sort of get that explaining things in a simple language to a client. How do we actually migrate ourselves with our heads in CFDs and stuff, and then try and articulate that in the simplest language possible? And then how do we know the customers understood it?”

“So how are advisers feeling one year in? I think almost all have really grasped and are adhering to the new compliance and process changes. There are still some that express maybe, shall we say, a degree of burden. But I think many advisors feel that they, you know, they were doing this anyway and it’s just needed a few tweaks and upscaling. Probably wealth advisors have maybe seen a bigger piece of work.”

“I think overall advisors have been saying that it really has fostered a much closer and better, shall we say, relationship between advisor and client. So that’s got to be good news. So I also asked advisors really how they were avoiding foreseeable harm or how they saw Consumer Duty helping them avoid foreseeable harm. I think that on the whole, advisors are much more receptive to protection coaching and reaching out for support than maybe pre-Consumer Duty. I think maybe as a result of more of that, I see that advisors are much better at really setting the scene about talking about the risks probability of something terrible happening within that client family.”

“So that’s got to be a really good outcome in avoiding foreseeable harm, we’ve seen much more interest from advisors about trusts and nominating beneficiaries.”

“We’re seeing much more discussions on kick on products such as family income benefit and also income protection. And I think that there is much better documentation. Advisors become really much better at documenting evidence, showing reviews and building that into their process. I think one of the things when we talk about best advice and we’re talking about value, etc., is that some compliance factors used to ask advisors why they had not chosen the cheapest premium. And we’ve always been advocates of value here, but I think now post-Consumer Duty then advisors are being asking why have you chose the cheapest premium. So turned it on its head a little bit. And for me, I think that’s really good news.”

“So vulnerable clients. It’s been mentioned a couple of times already. We know the FCA are currently looking at firms to see exactly how vulnerable clients are identified and what support is given to make sure they get the same outcome. So lots of questions about that. We have a lot of support available. We know the FCA are going to report back at the end of 2024 as to how firms are faring with vulnerable clients, but we’ve got lots of support that we can help advisor firms with not only identifying those customers, but also ensuring that their processes are flexible enough to make sure that those clients get the very best outcome.”