The Practicalities of Demonstrating Fair Value

Angus Winning

Angus Winning


What is value for money? Do customers know when they receive it? Most businesses would claim they offer it, but how would they prove it?

That’s the challenge laid down by the Financial Conduct Authority (FCA), who have lost no time in probing this concept.

  • On 31 July 2023, alongside the implementation of Consumer Duty, the FCA published their 14-point action plan for cash savings firms.
  • By December 2023, they’d asked nine firms to justify their fair value assessments for selected easy access savings accounts.
  • Separately, the FCA also asked investment platforms and SIPP operators to explain why increased interest earned on cash balances was not always being passed on to fee-paying consumers.

Aspects of these interventions suggest lines of enquiry, rather than a rush to judgement – what the regulator has described as a ‘learn and grow’ approach. But whilst thinking will undoubtedly evolve, some firms may still need a more compelling explanation about how their products deliver value to customers.

What have been the key talking points when demonstrating fair value?

The following factors have loomed large within the first fair value assessments.

  • The price and fair value equation: How to itemise and evidence the value delivered to customers (both financial and non-financial) as well as the firm’s costs (design, distribution, servicing, etc.) and what is considered a reasonable profit?
  • Customer cohorts: How do differing needs, behaviours, and preferences affect the value that specific customer cohorts (particularly vulnerable customers) receive from the same product?
  • Comparable products: Is pricing broadly consistent across similar products and services offered by the firm and competitors? Are variances justified by features or terms, so there is a logical link between pricing and design?
  • Minimising complexity: Do older variants of products continue to deliver value? Would consolidating legacy products make the range easier to manage and assure?
  • Lifetime value: How is value likely to change over time – whether due to product design or external factors (including economic, market, competition, technology, regulation)? What action is needed to maintain fair value?

Broader reflections

Industrywide, fair value assessments will mature and learning points are already emerging.

Firstly, we should remind ourselves that ‘value’ and ‘price’ are two distinct things. Defining ‘value’ will include ‘price’ but also a more holistic view of features and benefits. Value can be both financial (e.g. interest on savings) and non-financial (e.g. the safety offered by FSCS protection or fraud guarantees).

Secondly, firms should articulate value from the customer’s perspective, explaining how their products represent a fair deal in themselves. Many firms still lead on stakeholder returns, market best buys, funding rates, peer comparisons – important context, but secondary to good outcomes.

Thirdly, these assessments can enhance your commercial pricing strategies, showing how effectively you are managing component elements – (1) the costs of operating the product, including design, distribution and servicing, (2) a return required to ensure the product is sustainable, and (3) a fair price for customers.

Other dynamics may take time to evolve.

There are clearly areas – retail vs wholesale, cross-balance sheet interplay between savings and lending – where firms will need to balance both conduct and prudential obligations. For example, ‘best buy’ tables continue to drive significant flows within the savings market and price can be a lever to ensure retail funding levels are sustainable. Faced with this dynamic, a ‘goldilocks’ approach to pricing (not too hot, not too cold) must be clearly aligned with ensuring fair value for customers.

Get in touch 

Johnston Carmichael has supported a diverse range of financial services organisations with their implementation of Consumer Duty. Our work has included project implementation, complex change delivery, strategy development, change governance, assurance, learning, and Board/Exco engagement. We also enjoy our close, ongoing links with a range of industry experts, trade associations, and regulatory bodies.

Please get in touch with me, our team, or Ewen Fleming, Head of Consulting, if you would like to explore how our support could be tailored to your requirements and budget.

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