The end of July not only marked 12 months since the Consumer Duty was introduced, it also marked the deadline for providers of ‘closed book’ or legacy products to comply with the rules.
There are probably a couple of reasons behind the extended deadline given by the FCA. The first was the complexity of the task. The regulator did not underestimate the scale of what was required by providers given the sheer volume of products that have been sold in the past, coupled with poor data and the legacy systems to deal with.
The other reason was the opportunity to take any learnings from the past 12 months while the Consumer Duty bedded in on open products and services. The extra time will have helped to inform thinking around best practice and raising standards.
But now that providers of legacy products should finally be compliant with the rules, advisers who have clients who hold them should look to prioritise actions to take or plan them in.
Because under the Consumer Duty, adviser firms have a clear responsibility to ensure their clients are getting good value from providers’ products and hold providers to account if they identify the potential for foreseeable harm.
The steps to take on behalf of your clients
In research findings revealed earlier this year by abrdn, a significant number of the circa 300 adviser firms surveyed, 87%, reported that they have clients who hold ‘closed book’ or legacy products and services. I suspect however that the actual number of clients is reasonably low as most advisers will have already looked to move clients out from these products where they could.
The findings also revealed that a third of firms with clients invested in a closed book product or service said that they were already taking, or planned to take, a range of actions around them, and work with providers to protect clients from foreseeable harm, in line with the Consumer Duty.
One other finding of interest from our research is that only 13% of adviser firms surveyed were satisfied with the outcomes of the closed book products from providers their clients were using.
What’s clear from our survey results is that many adviser firms, having had to implement the Consumer Duty for their own services, were not waiting for the ‘closed book’ deadline to speak up where they saw a need for changes to be made.
And now that the deadline has passed, firms with clients who hold legacy products could look to take the following suggested steps on behalf of those clients:
- Identify the areas and products that have the potential for the greatest risk of foreseeable harm to your clients. This task can help you prioritise your focus by looking at both the level of foreseeable harm and the volume of clients affected.
- Check that the providers you deal with are compliant with the Consumer Duty, perhaps asking them what steps they’ve taken on the specific products your clients are using.
- Any issues or areas of concern should either have already been dealt with by providers or plans put in place. If there are outstanding issues however, check to see if the provider has taken action and if not, contact them to ask what their plans are.
These steps should be welcomed by providers as it will help them to not only understand the risks of foreseeable harm, but to prioritise their actions too. But If there’s no response from the provider and your firm believes a key risk has not been addressed, then your firm has the option to approach the FCA. It is however better to approach the provider directly if you can.
Our survey findings also revealed that more than a quarter (26%) of adviser firms we asked are, or plan to, report to the regulator. what they see as areas for providers to address.
Positive change and raised standards across the industry
Over the past year, I know from my conversations across the industry that many providers of legacy products were making good progress in their preparations to meet the Consumer Duty rules by the deadline.
So together with feedback from adviser firms and others, means we should continue to see positive change and raised standards across the industry in the weeks and months to come.
For adviser firms, the opportunity to reflect on lessons learned over the past 12 months and fill in the gaps on open products and services will have helped to ensure that their clients who hold closed products will have already had any foreseeable harms identified and dealt with.
This point itself, along with some of our survey findings, illustrate advisers’ relentless focus on raising standards across the industry for good outcomes for their clients that is firmly in the spirit of the Consumer Duty rules.
Take a look at more of Alastair Black’s insights.
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The value of investments can go down as well as up and your clients could get back less than they paid in.
The views expressed in this blog should not be regarded as financial advice.