Russell Bignall:

Welcome to this abrdn Adviser Podcast Special on all things Consumer Duty.

Alastair Black: At the heart of Consumer Duty, it’s about good customer outcomes and at the very heart of what an advice business is about, it is about good customer outcomes.

Russell Bignall: One client did actually ask me if I thought, if we thought, that the regulator expected fees to reduce as a consequence of introducing Consumer Duty.

Alastair Black: What the FCA have said that they want people to do is not focus on price. So, it's not the cost of this that matters it's the value. If we think much longer term, why has the FCA introduced Consumer Duty? They've introduced Consumer Duty because they recognise that customers need help. That's what advisers do.

So longer term, wouldn't it be fantastic if the end outcome of Consumer Duty was that this helped advisers have more efficient businesses so they could see more clients and help more clients, and this could help to fill the advice gap.

Russell Bignall:

I'm Russell Bignall, Managing Director of Sales, and today I'm joined by my colleague Alastair Black, Head of Savings Policy.

Alastair Black:

Hi, Russell.

Russell Bignall:

Welcome, Alastair. So, with Consumer Duty in place at the end of July, we're going to try and give advisers some practical guidance and how they should get ready. We'll also look forward to the landscape ahead after July’s deadline. What are the next steps adviser firms should be taking? And should we expect more changes from the FCA?

Alastair, I know that advisers are telling me they've never been busier. We've got stock markets, interest rate changes, inflation, and we've got Consumer Duty on the horizon. However, it does feel that the majority of firms are well placed to meet the rules. What's your view on that?

Alastair Black:

Yes, absolutely. I think there's probably a couple of things there. So, the first thing is at the heart of Consumer Duty, it's about good customer outcomes. And if we think about the advice process itself, which is about personal recommendations, and client suitability, that's all about good customer outcomes. So, at the very heart of what an advice business is about, it is about good customer outcomes. The other thing that you've just said is, at the spirit of what Consumer Duty is all about is firms not just following a process but thinking about as things change, how does their proposition need to change to support customers. And what you've just described there is, with all these changing markets, advisers being tied up to try and help their clients get a better outcome, or the best outcome they can, in these volatile times, is, again, absolutely the heart of what Consumer Duty is about. So, what you've just said to me is that advice firms are really focused on Consumer Duty, or the principles of it, which is about delivering for their clients.

Russell Bignall:

So, what that means is, advisers, good advisers continue to do what they have always done - take care of their clients, but there may be additional work for them in terms of documenting those processes now. Let's just rewind for a moment. Can you set the scene and talk to us about why the FCA is introducing the Consumer Duty, then what are the drivers for these changes?

Alastair Black:

Yeah, great question. So, the first thing to remember is that Consumer Duty is about every firm that deals with financial services. So that's not just every part of the value chain that advisers deal with in our sector, in terms of fund managers, platform providers, adviser firms themselves, etc. but also every other financial services firm from general insurance to bank. So, it's about everything. And it will have been clear over the previous decades that the FCA is still finding individual problems within each of those sectors. So, what they're trying to do is lift it up a level, which is why it's principles based.

So, Consumer Duty is about principles-based, which lifts it up a level and requires every firm to bluntly stop and think. And that's not great, because people don't have time to stop and think if they’re trying help their clients. But it's about lifting it up a level and building it into the fundamental culture of the firm. And the way that they're suggesting doing that is effectively by going through a process and you talked about documentation, and that's key, it's going through a process and mapping it out. And by mapping it out and documenting it and kicking the tyres. The idea is that firms will better understand what they're delivering, and potentially support some enhancements they can make.

Russell Bignall:

So, with these rules that are looming now for advisers and providers if the firms have been busy with clients, what do they need to make sure, what are the one or two things they've got to get done by the end of July then?

Alastair Black:

Yes, so the most important thing is, as at the end of July, their Consumer Duty champion… Actually, so that's probably the first thing to say is that, under the regulations, firms are supposed to appoint a Consumer Duty champion and the Consumer Duty champion for larger firms is somebody typically on their board or management committee equivalent, who will keep an eye on and make sure the firm is abiding by Consumer Duty, which is making sure they're thinking about good customer outcomes. It's fundamentally embedded in all parts of the business. And as at the end of July, the board/management committee Consumer Duty champion have to sign off that the firm are compliant. Now, really importantly, the FCA throughout their policy has recognised that this is not a one and done. This is not a piece of legislation which firms will do and complete up to the end of 31st July.

Now, that's really beneficial for firms because the FCA recognises that principles based it's hard to do. And every firm is going to be finding their own way of dealing with it and the FCA repeatedly talk about proportionality and prioritisation, which means particularly for smaller firms that don't have the resources for larger firms, they don't expect you to do everything, what they want you to do is have got started. So, the key things, the absolute must haves really, for the end of July are have appointed a Consumer Duty champion. Now, for a really small firm, where there's one individual, that's pretty obvious, it's that individual, but for a medium or larger size firm, appoint somebody as being the Consumer Duty champion, because they're going to have to sign off that you are compliant.

The second thing is, make sure you've got a plan, you don't have to have done it all. But have a plan, demonstrate you've thought about it and have that plan in place. And you've worked out what your highest priority two or three things are. Doesn't need to be a massive plan, just identify the few things that you need to do and demonstrate you have started some of them, ideally done a couple of key ones. And probably the two I would encourage people to really think about are the FCA in the guidance that has come out and in various speeches over the last six months, has talked a lot about the assessment of price and value within the financial advice industry. So, get something started. If you haven't already get something started to document what your proposition is, and the value in that proposition and why it provides value to your end client.

Russell Bignall:

That's interesting. So, I actually want to just play that back then. So by the end of July, appoint a Consumer Duty champion and get a plan in place and document that plan.

What about after July? Then? How do firms continue this process? What do they do next?

Alastair Black:

Yeah, that's really important. And actually, in the previous question, I talked about proportionality, and the need to have a plan, but they don't have to complete it all of it. So there's two key things, if there's additional actions in that plan that need to be dealt with, they don't need to rush at them, they don't need to get them done quickly. But they need to make sure they follow through in it. So if you've got items, make sure you're happy that those are the right things to do, and get them embedded in.

But also, I think a really practical thing they should do is ensure that they've got some kind of regular meetings in the diary to keep kicking the tyres on their proposition. Because if we go right back to the beginning of this, you talked about when a really challenging environment for advisers, well things change around us. So, get some kind of regular governance meeting in the diary scheduled in to go and kick the tyres and see, is there something else we need to do? Have things changed? Do I need to do something else? And if firms are really getting Consumer Duty, and this is a cultural shift in the organisation, then they'll get that this is this is not a one and done. If it's a cultural shift, this should be about on a continuous basis, how do we ensure our proposition provides value to the client? But in that rigorous documented process of recognising all the different parts of the proposition, which is what are my target market? What is the service I'm offering? Does it provide good value? Am I communicating it effectively? And am I supporting my clients? So those are the four, if you like, outcomes or four pillars, which the FCA have repeatedly talked about so and that framework’s useful.

Russell Bignall:

Okay, I'd like to pick up on that because of those four Consumer Duty outcomes the one I hear most about in the marketplace is price and value. There's an awful lot of debate for our clients around what that what that means - how it could impact fees. What's your view?

Alastair Black:

Yeah, absolutely. So, as I mentioned earlier, it's been a real focus of the regulator. They're really encouraging adviser firms to go through that process of documenting the value proposition and demonstrating price and value. Will it change? Really hard to say at this stage. I think the important thing is yes, you want the firms to go through that documentation process, kick the tyres, think about the services they're offering, and check that they can demonstrate through that documentation, check that they can demonstrate the value of their proposition. I think this, this will be emerging. This will change over time. And we can expect, I think we can expect more guidance from the FCA in the future. But again, get something started.

Russell Bignall:

One client did actually ask me if I thought, if we thought that the regulator expected fees to reduce as a consequence of introducing Consumer Duty.

Alastair Black:

That's a great question. Longer term, I'm sure they want them to reduce, because actually, the FCA recognise that more people need advice. And my guess is that the FCA might think well, if the cost of advice comes down, then more people get advice and that would be a good outcome for everyone.

Realistically, that's not the approach the FCA have taken. What the FCA have said that they want people to do is not focus on price. So it’s not the cost of this that matters, it's the value. You need to think about pricing around, but the really important thing is to think, what is the service that I'm offering? Is everyone getting the same services? There's a little bit of work to do on thinking, are all my clients getting the same service? Should they all be? Should they all be charged the same fee? Which is probably more where the FCA’s focus is. Should everybody be charged the same? As opposed to should the general level come down? Because if the service that they get is good and valuable, I don't think the FCA would have a problem with it. I think it’s just everybody getting the same service and should they all be charged the same.

Russell Bignall:

Let's change tack. Another question I've had from clients has been from firms who run their own advisory model portfolios, you know, where they select to monitor and manage funds for their customers - and will there be any extra work for those under Consumer Duty?

Alastair Black:

That's another good question. So, at the core, I think of the initial challenge that most firms in the financial services sector had when Consumer Duty came in, was recognising the difference between a distributor and a manufacturer. And actually, under PROD rules as a platform provider, we were actually a distributor of funds, not a manufacturer. When Consumer Duty came in, we became a manufacturer of platform services, which we provided to advisers to help support their end clients.

Exactly the same with advisers. Advisers have absolutely, I think that advisers have got their heads around that their advice services are manufactured. I think where it gets more complex is, if a firm is running model portfolios, effectively, what they've got is they can say that they've got one thing that they're manufacturing, but actually, it's probably easier from that documentation and kicking the tyres perspective, if they were to split it into two and think “I've got a financial planning service” and “I've got an investment advice service”. So, it's definitely increasing the work that they have to do.

Russell Bignall:

Okay, so just help me then. So, does that mean that if I'm running an advisory portfolio of funds as an adviser, that I've got more documentation more work to do under Consumer Duty?

Alastair Black:

Yes, absolutely. Because, because the services that you're providing to your client are more, and you need to demonstrate that each part of that service is being appropriately managed. So, it's not just the financial planning advice part, you need to also carry that out for all of the processes, all of the processes that are being run around the investment management.

Russell Bignall:

What do you think that will mean for outsourcing to discretionary managers going forward, then?

Alastair Black:

It'll probably mean a continuation of the trend we've seen over the last 10 years, there's been a general increase of firms that have decided that they don't want to run model portfolios and outsourcing to discretionary fund managers. So, I would suspect that that will continue to increase. But it's really important to recognise, I certainly recognise that that will absolutely depend on the firm, there are firms who will make an active decision that the investment management is a core part of their business, and they want to and are willing to invest in that. And there will be others that decide, actually, this is not a core part of our business. And I think the additional work that's needed around the documentation, governance and controls around that is likely to increase what they probably have done already.

Russell Bignall:

Thanks, Alastair. I think that's really useful insight for most of our client firms to think about. Going forward then, just on the regulator, do you expect the FCA to come out with further guidance on Consumer Duty?

Alastair Black:

Absolutely. In fact, if we look at the look at the last six months, we have had regular updates from the FCA and speeches, which are absolutely there to help give clear indication to firms on what the expectations are. So, I think a lot of firms across all sectors of financial services, absolutely not just the advice sector - this applies to fund management, platform providers, banks, general insurance, all different sectors - have got their own have got their own areas of focus. The FCA has come out with guidance on this is what you should think about, we should absolutely think about that going forward.

The other thing is, we should absolutely expect the FCA will carry out more reviews. So back at the beginning of the year, they did a review of some large firm implementation plans. And off the back of that they came out saying “This is what we found is good practice and everybody should be doing it”, “We found this as poor practice and people shouldn't”. I think we should expect more of the same which is post implementation. I think they will review of a bunch of firms, find good and poor practice and then come out and help embed that in the industry by, without naming firms, saying here's some examples some good things you should do. And here's some examples of some poor things don't do.

Russell Bignall:

And I'm just thinking then you mentioned we're very lucky here at abrdn we've been supported by all types of adviser firms across the UK, from sole traders into large multi adviser multi office firms. Does Consumer Duty apply in the same way to every firm, you know, what's your view on that?

Alastair Black:

So, yes and no. At its core, yes, because every firm, every firm has to demonstrate that it's carrying out the right actions to deliver good customer outcomes. The really important point to remember is, particularly for this for the smaller firms, if you're like a sole trader, the FCA recognises that they do not have the same resources as a large firm. And actually, for an advice firm 99% of what they do is actually trying to deliver good customer outcomes for their for their clients. So, they talk a lot in their policy about proportionality, and prioritisation, which I mentioned earlier. So, they do not expect a sole trader to carry out the same amount of work. But they do expect them to embed it in their culture. So, there's some basic things that they should do.

Really importantly, we have got a lot of information on our on our Consumer Duty Support Hub, which is there to help all sizes of firms. We've had pretty good feedback from both sole traders and large firms. But there's been, there's been things in there, which have been genuinely helpful. So, I really encourage everyone to go and have a look at it.

Russell Bignall:

One of the things you've said that does resonate me, I see good practice every day with the clients that we are privileged to work with. And I think if I was to summarise what you said is the Consumer Duty is just the start for the regulator around ensuring that all of that value is documented and shared going forward. And have you got any closing comments for our podcast today?

Alastair Black:

Yeah, there's probably a couple of things looking longer term. And you touched on earlier, which is, which is what happens after the end of July. And as firms put in place governance to kick the tyres on a continuous basis, I think we'll see, I hope we see a significant increase in standards across all parts of the industry. And I've talked before actually publicly around adviser firms should see that as a good thing because they're so dependent on other financial services firms, further up the value chain. So those firms are delivering better outcomes for their clients. That's got to help advisers.

But if we think much longer term, actually, why has the FCA introduced Consumer Duty, they've introduced Consumer Duty because they recognise that customers need help. That's what advisers do. So longer term, wouldn't it be fantastic if the end outcome of Consumer Duty was that this helped advisers have more efficient businesses so they could see more clients and help more clients? And this could help to fill the advice gap.

Russell Bignall:

Oh, hear, hear. Thank you, Alastair. I've really enjoyed it and what I'm taking from it is good advisers have nothing to fear from Consumer Duty. It's more a question of helping them to articulate those customer promises that they make and keep day in, day out. Thank you. Alastair.

Alastair Black:

Thank you, Russell.

Russell Bignall:

Thank you to our audience for tuning in to our podcast. If you do want more information, guidance or further insight on Consumer Duty, please head across to our website at abrdn.com/adviser and you can find our Consumer Duty Support Hub and all of Alastair’s blogs on this and many other topics. And as the FCA develops their guidance, we’ll continue to update and provide more insight to help you take care of your customers. Until next time, thank you for listening.

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