Alastair Black, head of savings policy at investment manager , discussed how the sector and the Financial Conduct Authority (FCA), has been adjusting to the framework. 

“The first year of Consumer Duty has been defined by embedding and learning. A principles-based approach, by definition, doesn’t have rules, so everyone – including the FCA – has been feeling their way and charting a path forward,” Black said in a note.

There are three broad legs to the Duty: A new Principle for Business: the "Consumer Principle which requires firms to "act to deliver good outcomes for retail customers"; there’s a "Cross-cutting rule" setting out three overarching behavioural expectations that apply across all areas of firm conduct, and third, there are "Four Outcomes," which are rules and guidance setting more detailed expectations for firms. Its purpose is to ensure that wealth managers and others in the UK financial services space do what they say they do. 

Within months of the Duty taking force, St James's Place, for example, changed its manager line-up and cut fees on two of its funds. Industry figures have told this news service of how significant the Duty has been. The Duty could shape the pace and shape of wealth management consolidation and restructuring, given the costs of compliance and the need to integrate businesses smoothly. (See an interview here with , for example, on its view of the new regime.)

Research from consultancy showed that the pressure of the Consumer Duty has caused a widening of the advice gap, with more than half of respondents saying they have stopped advising clients as a result of the regime. Of those that made cuts, lang cat found that 12.7 per cent of clients were no longer serviced. They estimated that it could lead to 1.5 million of clients being cut out. The effect highlights a dilemma. Tighter regulatory controls raise barriers to entry and can prompt firms to cut business lines. On the other hand, defenders of such rules argue that standards must improve. 

“The lang cat’s latest advice gap report highlighted a change in focus to core client groups and greater client satisfaction,” abrdn's Black said. “While the change in focus inadvertently increases the advice gap, this is good evidence of firms having rigorously reviewed processes, tightened up target markets and delivered even better client outcomes off the back of embedding Consumer Duty.” 

“But we haven’t seen dramatic change in the sector, and it was always unrealistic to assume this would happen. Consumer Duty is built on existing regulation to deliver good outcomes. Those firms that were already relentlessly focused on delivering for clients – which is after all the key purpose of most advisor firms – will have been largely complying already,” Black said. “That being said, the past year might have felt frustrating for some. Most firms in the sector are smaller businesses and spend the vast majority of their time directly dealing with clients. Having to take additional time out to kick the tyres and document processes and governance will have added to already stretched workloads. But having made it through these past 12 months and completed these reviews, they’ll likely find coming years easier."

“Going forward, firms’ focus should be as much on compliance efficiency as it is on compliance itself. Done well, this will help raise standards of service and enable advisors to spend more time doing what they do best – advising clients,” Black said. “There will always be opportunities to enhance services off the back of Consumer Duty – including how to measure value, which was always a concern given that this also encompasses more abstract concepts like peace of mind – but we can also expect to see the FCA publish more best practice guidance as it observes good practice in the field, which will only help firms measure what good looks like.” 

The buck stops with the advisor
Nick Henshaw, head of intermediary distribution at Wesleyan, noted that at the end of the Consumer Duty implementation period, there were a couple of specific watch-outs for the advice industry which he discovered during his conversations with intermediary customers.

“If advisors outsource investment services to discretionary fund managers, for example, it is still their responsibility to provide suitable services. The regulatory buck always stops with the advisor,” he said.

“Advisors should also consider whether the technology they use allows them to fully meet the unique and evolving needs of their clients. For example, their platform might not give them access to more specialist investment options, such as smoothed funds that are designed to mitigate sequencing risk and volatility risk during periods of economic uncertainty,” Henshaw added.