Consumer Duty:
Financial Firms Must Prove Their Value to Customers in First Annual Reports

The FCA introduced the Consumer Duty in 2023 as a series of new rules ensuring that financial services providers offer their consumers “good outcomes”. The aim of the Consumer Duty is to “set higher and clearer standards of consumer protection across financial services and requires firms to put their customers’ needs first” by providing customers with:

• the support they need when they need it
• communications they understand
• products and services that meet their needs and offer fair value

As the first year of the Consumer Duty rollout comes to a close on 31 July 2024, the FCA is telling financial firms that they need to provide clear evidence of how their charging structures comply with the new rules on transparency and value for customers.

Sarah Batham, Chief Risk Officer and General Counsel at Sesame Bankhall, a network of appointed representative (AR) mortgage and protection advisers, told the recent Professional Adviser Management Retreat that compliance with the Consumer Duty was not a “once and done” scenario and that:

“The regulator expects this to be part and parcel of your firm’s culture. It is not just a compliance thing. It is very much about making sure everybody in the business understands what Consumer Duty is and what their role is in that. What the regulator is trying to achieve is saying: ‘You need to test your assumptions’ and ‘this is really happening’. The regulator is saying ‘prove it’ – show the evidence that you are delivering those good customer outcomes. And if there are blind spots, the regulator is saying ‘tell me what you are going to do about them’.”

Financial firms will need to prove to the FCA in their first annual reports that “they are learning and improving continuously” and that they have delivered on the factors required by them as part of Consumer Duty and are committed to customer service, support, and communications that look after customers’ best interests.

Speaking at an event in November 2023, Nisha Arora, Director of Cross-Cutting Policy and Strategy at the FCA, said:

“Duty isn’t something where you can tick the Consumer Duty box on your to-do list and move on. It’s something that needs to become part of who you are as a firm, your culture, and how you do business, running across your whole organisation from Board to front-line delivery, from product design to communications and customer support.”

The introduction of the Consumer Duty saw the FCA crackdown on regulated firms offering unsuitable advice and mis-selling products. In February 2024, the authority requested data from the 20 biggest advice firms in the UK relating to their ongoing services and whether they had made any changes following the introduction of Consumer Duty.

We recently covered the news that wealth management firm St James’s Place (SJP) was planning to overhaul its fee structure following the introduction of Consumer Duty – scrapping controversial exit fees, capped advice fees, and fund charges. The firm announced in early 2024 that it had earmarked over £425 million to cover client complaint compensation.

The changes come after years of the FCA trying to get a handle on UK advisers and their somewhat obscure and significant fees which prompted the introduction of Consumer Duty. Mick McAteer, a former FCA board member, commented on the updates from SJP:

“Until now, SJP has provided good value for shareholders, but that was because it had yet to be subjected to meaningful scrutiny by regulators. The new rules have shone a light on its practices.”

Fund Manager Richard Buxton added:

“Consumer Duty has been a complete body blow for St James’s Place in terms of its existing business model.”

In short, the introduction of the Consumer Duty has brought to light unsuitable practices that have been hidden in the UK financial industry for many years and is giving consumers the opportunity to review and compare advice fees and move their investments accordingly.

If you have engaged with a financial adviser and think you may have been mis-sold a financial product or received advice that was not suitable for your circumstances and has affected you financially, speak to TLW Solicitors’ experienced financial mis-selling team.

Working on a ‘no win – no fee’ basis, TLW’s experienced financial mis-selling lawyers can help you through the compensation process, whether this is settled in the early stages directly with your financial adviser or through the Financial Ombudsman Service (FOS), the government-backed body that deals with disputes between financial institutions and their customers.

TLW Solicitors’ team has extensive experience successfully taking cases to FOS and securing client compensation, even if they have been knocked back previously.

Sarah Spruce, Legal Director and Head of the Professional Negligence department at TLW Solicitors, commented:

“Financial firms in the UK have been able to hide behind obscure fees and confusing charging structures for far too long, so it is great to see the FCA really taking a stand and reiterating that the Consumer Duty is not a one-off, tick box exercise. Compliance with Consumer Duty requires ongoing commitment and can only be a good thing for consumers. We will keep an eye on the headlines following the annual report deadline of 31st July to see just how well the firms in this country are adhering to the new rules.”