The Model Office Blog

With our research showing only 1 in 4 firms taking action on the Consumer Duty and a month to go until the first October 31st deadline, it is probably worth retail advice firm’s sense checking where they are and what they need to do to ensure they have plans in place to assess their competence against this all-encompassing regulatory framework.

So let’s cut to it:

1. They will need to have mapped out the business operations, services and products against the FCA new Principle 12, cross cutting rules and four outcomes. This means;
   1. Designing an all-inclusive project plan to cover all relevant staff members, incorporating your strategy, training and competence plans, communications, client engagement activities
   2. Worked through the distribution chain and applied the FCA ‘reasonable’ test for fair value throughout all parties across product and service features, benefits, fees and charges
   3. Engaged in a review across all contracts and agreements with third party suppliers and your clients to again benchmark fair value
2. Ensure all parties in the distribution chain contracts, product features and services are aligned to your client needs and requirements. If they are a co-manufacturer e.g. operate in-house investment funds, then they will need to have started assessing written contracts and determining the essential features and main elements of a product or service, including its target market. So ideally review the distribution chain participants;
   1. Service, costs and charges
   2. Written client agreements (bearing in mind the FCA agent as a client rule)
   3. Financial stability (size, market share, AUA, profitability, gross/net sales)
   4. Fit to your client segmentation strategy
   5. Client focused culture
3. Assess third parties and outsourcing relationships, ensuring any consultants, non-executive directors and support services have the right credentials, skills and competencies to see you through the next few weeks, months and years of Consumer Duty compliance. This should include:
   1. Clear ownership of each relationship
   2. Clear and understandable contracts
   3. Agreed service level agreements, KPI and KRIs
   4. Service and periodic review meetings
4. Revisited other regulations that are impacted by the Consumer Duty;
   1. The Senior Managers and Certification Regime, ensure all Senior Managers are allocated the right responsibilities and accountabilities, certified staff are trained, conduct rules (including the new individual rule 6) are revisited
   2. Training and Competence is assessed against adviser competence and conduct requirements and logs are updated
   3. Product Governance (PROD) rules are complied with. The FCA noted that those firms who do not comply with PROD will fail the Consumer Duty
   4. ESG, ensuring you have disclosure and client sustainability strategies built into the advice service proposition
   5. Resilience strategy across all operations, financials and cyber-risks
5. Reviewed their ‘Tech stack’ and employ a research and due diligence process to ensure this is fit for purpose against the Duty and existing regulations. This is a good opportunity to revisit existing technology across client engagement (investment research, cash flow, attitude to risk-capacity for loss) and other technology such as practice management, client portals and RegTech to ensure they offer the right data and management information the data led FCA now require and clients need.

Remember if you haven’t got the data, it didn’t happen and if you do, it better have happened.

6. Ensure they have started or revisited your client segmentation strategies and incorporate client behaviours such as propensities to buy certain products and sensitivities to fees along with their financial journey stage. Do not forget to review the service proposition features and fees ensuring value is delivered for clients at different life stages and requirements e.g. runway to retirement, at or in retirement
7. Do not forget the legacy book if they have one. Although we have until July ’24 to have this sorted, there will be relationships with the current business book and how they engage with clients.

Yes, there is plenty to do over the coming weeks and months, but the point is the FCA want all firms to (at the very least) evidence they are planning which will stand them in good stead for April and July ’23 where firms need to have implemented plans, conducted gap analysis and yes complied and remain competitive!

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