Identifying weakness gaps within this distribution chain and remedying to deliver a good outcome for all types of customers, including the vulnerable group, will be a huge communication and logistical challenge.
The implementation challenges for firms in terms of collecting the data, managing metrics and management information systems, to monitor and document assumptions, tests, customers’ outcomes will also require significant investment in resources and systems.
It would be naive to underestimate the additional effort needed to discharge the vulnerable customer responsibility, given the potential size of this segment and its multiple touch points throughout the lifecycle of the products and services.
According to 2020 Financial Lives survey data, 46 per cent of UK adults, equivalent to 24mn people, were found to show one or more characteristics of vulnerability.
As the FCA enforcement satellite orbits the duty, it will be equally challenging to supervise and enforce the outcomes on all regulated firms.
To assist firms to evaluate a fair value framework, the FCA, in May 2023, published its findings from its review of 14 fair value assessment frameworks.
The areas it recommended for further considerations were:
- monitoring, evidencing and embedding requirements fully to cover all products and customer groups;
- clear accountability and effective prioritisation of mitigating plan; and
- clear documentation and presentation of fair value assessment reporting so decision-makers can assess and discuss delivery of value including limitations.
Based on the guidance expectations and the implied language, it is likely that price and value assessment reporting may become the centre-piece for monitoring fair value outcomes to customers.
This will consist of a combination of internal and external benchmarking of products, fees charged commensurate to costs, customer expectation of value delivered, and the risk of harm to vulnerable customers, including plans to address the risks.
What’s the message for consumer duty reporting in 2023 and beyond?
The UK’s consumer duty took effect from July 31, and no doubt through 2023 the debate and evolution will continue on classifications of fairness, what constitutes good outcomes, and price and value peer groupings for benchmarking.
Independent analysis and metrics validation will provide a meaningful common platform for the board and management to review, discuss, and determine if a fund is providing fair value to its customers.
This will mean that boards could be challenged on their convictions and beliefs when making choices on selecting benchmarking peers.
Regardless, each of us in the investment industry has a role to play and an obligation to build trust with our customers and strive for quality and integrity in delivering good outcomes for all our customers.
The key for us as an industry as we face scrutiny is not only if we are reasonably delivering good outcomes to our customers in 2023 and beyond, but at all times learning and reaffirming the effectiveness that what is being reported actually represents reality.
Delivering fair value to consumers is here to stay and will become extremely important across Europe given the recent announcements from the European Commission of their plans to also introduce fund cost and performance benchmarks.
