What Advisers Need to Know About Consumer Duty and Communications
The new consumer duty regulations in the U.K. will significantly impact how financial advisers communicate with clients. Consumer duty requires wealth management firms to articulate their value proposition in plain English and demonstrate to clients the value they provide – beyond just returns. If a client can’t understand what you are explaining, whether that be investment goals, financial planning strategies or specific investments, you may find yourself violating consumer duty regulations. Developing a compliant communications strategy is vital.
What is consumer duty?
The Financial Conduct Authority (FCA) established a new principle that requires your wealth management business to ‘act to deliver good outcomes for retail customers.’ The principle is supported by three rules requiring firms to:
- Act in good faith
- Avoid causing foreseeable harm
- Enable and support retail customers to pursue their financial objectives
Consumer duty will play out in four outcomes: products and services, price and value, customer understanding and customer support. This principle is setting higher standards than past regulatory measures, and has placed a major emphasis on providing evidence of value to customers that goes beyond investment returns.
Although Consumer Duty is, as of now, only a regulatory concern in the U.K., it is important to note that numerous Canadian financial regulations have been influenced by those initially introduced in the U.K., and this might be an important sign of what is to come for our Canadian readers.
How will consumer duty impact my communication strategy?
The volume of information around this new principle might be somewhat overwhelming. We’ve highlighted the key components that will likely impact your communication strategy as a financial adviser.
- Communications are relevant and appropriate based on characteristics of your clients, including their vulnerabilities.
Advisers must understand their target audience and tailor client communications accordingly. Ask yourself, are there forms of communication that can be understood by some clients and not by others? Are you providing the right services, products and recommendations based on a specific client segment? This change might further require you to segment your communications in a way that factors in characteristics such as stage of life and net worth. The FCA also encourages firms to think about vulnerabilities as a spectrum of risk that is driven by four factors: health, life events, resilience and capability.
2. Communications are clear, fair and not misleading.
Advisers must ensure that all communications meet the information needs of retail investor clients. Communications must provide accurate, relevant and timely information so clients have all the necessary information to make appropriate financial decisions.
Fair access to information also includes distributing communications on all channels that your clients exist on. Different client segments, such as people new to the workforce or retirees, may be looking for information on different platforms that individuals who find most of their information on social media sites.
3. Communications are consistently understood.
This component of the new consumer duty regulation involves constant testing, monitoring and adapting of communications to ensure customer understanding and support for good retail client outcomes.
There are many things to remember when complying with the FCA’s new consumer duty regulations. Aegon has recommended that financial advisers consider working with an external content provider to help with messaging, and ensuring information is provided in a clear and concise way.
As an adviser, we understand that you may not have the time to ensure that all your communications meet your consumer duty obligations. Ext. Marketing works with independent financial advisers (“IFAs”), discretionary fund managers (“DFMs”) and other wealth managers to clearly articulate their value proposition, differentiate themselves, and reach their target audiences.
Book a call with us today at info@ext-marketing.com to discuss how we can help with all your client communication needs.