‘You would never break the chain’

Darren Mascarenhas

Darren Mascarenhas

Financial Services Director

‘You would never break the chain’. That was the famous line from an iconic Fleetwood Mac song, but another important aspect of Consumer Duty in the Wealth and Asset Management industry is the emphasis it places on the end-to-end customer value chain.

A few firms operate across Advice, Administration and Asset Management but this is generally not the norm in the industry. When firms do cover the spectrum, they often operate as distinct and separate functions. Consequently, each function can often feel driven by its own agenda, not the business as a whole, and certainly not the end customer’s best interests.

Consumer Duty changes this outlook completely for retail customers as it places focus on the end-to-end chain, the firms that have a role in that and the impact the customer experiences across that chain from start to finish. This perspective creates several challenges that firms in the sector will need to address, including the following:

Focus on end customer

Fund and asset managers who previously considered themselves to be providing their services to professional/institutional investors need to consider and protect the end retail customer from foreseeable harm. This includes their fund design, pricing and in life interactions.

Adequacy of existing controls

It’s easy to place reliance on existing controls (e.g. on PROD 3 and COLL) to meet the products and services, and price and value outcomes. However, firms should be challenging their existing controls and assessing if they are fit for purpose, especially around firms’ value assessment implementation. It’s also key to identify what to do when things go wrong. 

Third party information flow

Firms need to work with third party service providers to understand the quality, volume and timing of information they will need from their outsource service provider. An open communication channel and prioritisation of tasks will be essential if they are to provide support on consumer outcomes. A good example of this is where manufacturers are expecting distributors to tell them what information will be required, and distributors are waiting for manufacturers to tell them what information will be available for them.

Quality Management Information (MI) and annual assessments

There will be a huge onus on firms to collect data to evidence compliance with the Duty. Boards will need high quality MI to monitor good consumer outcomes and prove that foreseeable harm has been mitigated. Firms should also start thinking about their annual assessment of compliance with the Duty. 

Assessing fair value on total costs

When determining fair value, distributors like platforms, and financial advisers must consider the total costs for each good or service that they provide. This should consist of their own fees plus any additional fees that the client is likely to pay like other firms in the chain. 

Training to identify and manage vulnerable customers

Training frontline staff and advisers to identify and manage vulnerabilities will not be enough to meet the requirement of the Duty. Consumers will face variations in the characteristic and circumstance that can lead to consumer vulnerability. Firms across the chain will be required to systematically assess and treat this over the lifetime of the product and customer. 

Any of these challenges - and many more covering product design, communications (and comprehension testing), in life servicing and maintenance, governance and reporting - could potentially break the chain, causing customer detriment and regulatory intervention. A comprehensive, proper, and proportionate response to Consumer Duty is vital to protect customers and the reputation of the sector.

Get in touch

We are currently working with several firms on their Consumer Duty implementation and post implementation efforts. If you would like to talk to us about your plans or need help with any aspect of Consumer Duty, please get in touch with Ewen Fleming or myself.

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