"So, the level of care that is appropriate for these consumers may be different from that for others”.
The FG21/1 gives examples of identifying customer vulnerability. Here are just four:
- Health: conditions or illnesses that affect one's ability to complete day-to-day tasks, both mentally and physically.
- Life Events, such as bereavement, job loss or relationship breakdown.
- Resilience: low ability to withstand and manage financial or emotional shocks
- Capability...
Considering this, and given the impact of retrospective regulation, I’m mindful to ask the FCA:
- If firms are presented with a potential client who ticked one or all the above, should an adviser now a have a psychology qualification added to the list in order to be able to identify specific vulnerabilities?
- Is there a route map questionnaire that firms can use to determine what is vulnerable and what is not to keep on file?
- Should firms make additional charges such specialist consultative work when dealing with the added time that may be needed to deal with those in a vulnerable category?
- If a consumer is deemed to fall into a vulnerable category can the firm refuse to take them on or retain them as a client as in doing so, they could find themselves at regulatory risk at a later date?
- How could this affect PI insurance and the insurers understanding of Consumer Duty risk to charge accordingly?
All things considered; I don’t believe any firm should have the consumer duty responsibility placed at their door in the way it is being asked to.
The FCA's business plan for 2024/25 sets out several commitments. The plan, only published this March 19, sets out the regulator's annual funding requirement.
This is expected to rise by more than 10 per cent to £755mn, no doubt to recoup consumer duty costs? Their commitments are laid out in four key points:
- Utilising AI for fraud prevention
- Building on consumer duty
- Developing the UK as a global market
- Problem firms and failures.
It is the latter that causes me most concern as their expectation is that firm failures will not decrease in 2024 despite implementation of consumer duty to reduce this.
One should note in the narrative that “we will continue to use data and horizon-scanning mechanisms to anticipate firms that are at risk of failure and make sure that we can respond appropriately in the event that they do to protect consumers and ensure market integrity”.
Twelve years on from RDR, we live in a compensation hungry world in 2024? Will consumer duty, a language driven reinvention of treating customers fairly, see yet more firms fail unfairly?
A crystal ball moment
Just to make matters worse for advisers contemplating the cost and implementation of Consumer Duty, at the end of last year the FCA announced that ‘CapAd' proposals would require advisers to “calculate their potential redress liabilities at an early stage".
They must also "set aside enough capital to meet them and report potential redress liabilities to the FCA”.
This is the regulator sending a message in answer to their key point 4 above, that it believes that firms are very poorly resourced.
Could it be that the impact of so much regulation and associated costs is being exposed but instead of addressing the problem, it is carrying on with more obstacles?
The idea, as I see it, is that any firm not holding enough capital to deal with vulnerability will be subject to automatic asset retention rules to prevent them from disposing of their assets in anticipation of what may not actually happen.
This is a recipe for disaster for the SME adviser.
This will see smaller firms cease trading, bigger ones getting bigger on a feeding frenzy and supposedly more resilient, providing consumers with higher-cost advice outcomes.
It will not see “a thriving financial advice market to make sure consumers can access the support they need from financially resilient advice firms that want to do the right thing".
