3 min read 22 Nov 22
In practical terms, the Consumer Duty’s products and services outcome mostly concerns collaborating and communicating with product providers.
To meet this outcome, the FCA has separate requirements for distributors and providers. Here, we’ll focus on what the regulator needs from advisers – as ‘distributors’ – and how you’ll be working with providers to meet the FCA’s requirements.
In a nutshell, this outcome embeds the existing PROD rules and indicates that you may need to refresh (or at least verify) your target market definitions. You should also identify all vulnerable customers, and take action to mitigate any “foreseeable harms”.
Even though the direct impact of the products and services outcome on advisers will be limited, you’ll be expected to work more closely with product providers and, in some instances, supply them with the MI they need to meet their own responsibilities.
In many ways, the three other Duty outcomes – price and value; consumer support; and consumer understanding – all hang off the products and services outcome. This is where your reading and planning before next summer’s implementation deadline should start.
In the FCA’s words, consumers “can only pursue their financial objectives and avoid foreseeable harm when products and services are fit for purpose”.
Referring to both providers and distributors, the Duty explains that firms must ensure the design of any product or service meets the needs, characteristics, and objectives of customers in an “identified target market”.
Everything then becomes about making sure activity is appropriate to that market, starting with distribution. At frequent intervals, providers and advisers should evaluate whether a product or service continues to meet the target market’s needs.
At this stage, the difference between a provider and distributor is clear: while advisers must consider suitability for individual clients, providers don’t need to go that far when considering a target market.
The FCA says firms are distributors if they offer, sell, recommend, advise on, arrange, deal, propose, or provide a product or service, including at renewal.
The requirements on advisers can be summarised as follows:
In the FCA’s words, distributors must get all the information they need from providers so that they fully understand what it is they are recommending. Which is where collaboration becomes key.
The FCA’s list isn’t particularly short:
If a provider judges a product should generally be held for at least five years, and where it lacks oversight of the full distribution chain or end customers, it may also ask what proportion of customers held the product for less than one year, or more than one year but less than five.
As all other Consumer Duty outcomes hinge off this one, and because PROD is already in place, we consider it will have a medium impact on advisers.
When it comes to your target market, you may need to revisit and refresh your definitions or segments to ensure they continue to reflect your client base, and to ensure that vulnerable customers are identified.
When it comes to working with providers, it really is a case of being clear what you need from them while also considering what you can do to help.
What advisers need to know about assessing value for money in a Consumer Duty world. The price and value outcome of the Consumer Duty poses something of a dilemma: price is simple to measure; value less so. Thankfully, that’s not a problem the FCA is asking anybody to solve.
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