A year ago next month, something momentous happened. The financial services watchdog decided to put customers, not businesses, first.
Not that they weren’t first already, sort of. Defending their interests was one of the FCA’s primary goals from day one. From the Treating Customers Fairly regime, to marketing rules forcing firms to be clear, fair, and not misleading, regulators have always had at least one eye on the end investor.
But on July 1, 2023, the burden of proof changed. Under the Consumer Duty, advisers actually had to show their products were value for money and clients were being taken of properly.
Well we do that already, harrumphed the majority of well-meaning planners out there. Their main complaint seemed to be that the Duty might not really improve outcomes. Instead, it would bog advisers down in paperwork and invite a whole bunch of ambulance chasers to claim they weren’t following the letter of the law.
A traditional first anniversary is marked by paper. Is this year’s gift just a deluge of letters from opportunist claims managers looking to cash in on the Consumer Duty? In search of answers, I sent a Freedom of Information Act request to the Financial Ombudsman Service to see how many complaints over the past year had referenced the Consumer Duty.
FOS didn’t know. More precisely, “the information… isn’t something our organisation holds in an easily accessible format and, in order to obtain this information, we’d be required to undertake a manual review of each complaint to extract and collate this information.”
It doesn’t exactly fill you with confidence that the complaints adjudicator can’t really say what impact what may be the most significant regulatory reform since RDR has had on claim volumes.
Has Consumer Duty worked?
That goes to the rub of the issue: one year on, we’re still not much the wiser at the whether the Consumer Duty has actually worked. We have indeed seen significant changes to advice models in the wake of the duty. The biggest of them all is St James’ Place’s decision to do away with exit fees. Platforms have also overhauled how they pay interest on cash to make this fairer in light of base rate hikes. Both moves were ostensibly made with consumer interests in mind.
For its part, the FCA continues to say that it won’t go after each and every technical transgression. But critically, it also hasn’t announced any enforcement action that specifically references the Consumer Duty. No statement saying you’ve been fined or banned because you’ve fallen short on this specific element of the regulation.
Nor have the firms themselves publicly admitted the changes are specifically a result of the Consumer Duty. Commentators leapt on a recent review into ongoing advice charges at Quilter, for example. But not receiving financial advice you paid for each year is a seeming open goal for regulators to crack down on, Duty or no Duty. The FCA had been sticking its nose into annual services and charges for years before the big boys caved.
The claim game
Claims management companies do continue to hover over such firms ready to launch complaints. But they are encountering their own problems, including around whether they can stay within the fees set under the FCA’s CMC charge cap. That will probably count against them if they want to pursue the Consumer Duty line. But then again, reports that some SJP advisers had pressured clients into not joining the claims isn’t very Consumer Duty-ish of them either.
When push comes to shove, the jury is still very much out on whether the flagship changes have led to tangible improvements for customers. But the direction of travel from the FCA is certainly one of greater assertiveness, as evidenced by its recent ‘name and shame’ consultation.
Second anniversaries are traditionally celebrated with a gift of cotton. Even without the evidence, it still might be worth advisers not packing their ears too heavily before another year goes by.
Photo by Ever on Canva
