The implementation deadline looms for the Financial Conduct Authority’s (FCA) Consumer Duty. There have been suggestions that it will be the biggest regulation for the UK financial advice market since the Retail Distribution Review (RDR).
Heather Hopkins, managing director and founder of NextWealth, has given predictions of the impact of Consumer Duty.
She said: “The duty itself of course represents an opportunity for positive progress, and my hope remains that the delta falls in favour of consumers and customer outcomes.
“Unfortunately, the impacts we see from Consumer Duty will at best result in improvement at the margins, at worst, a widening advice gap and increasing cost of advice.”
Hopkins’ predictions:
1. MPS asset growth: MPS will continue to gain assets as advisers focus on cost reduction and look for efficiencies in their business. Tailored models will get most traction.
2. Shrinking number of partners: Financial advisers will reduce the number of providers they work with as they look to develop fewer strategic partnerships to meet the needs of defined target markets. The data and management information requirements of Consumer Duty necessitate this. Firms will permit fewer off panel recommendations.
3. Tech-enabled advice: With some advisers increasing fees to cover the additional workload, there is a risk that Consumer Duty will reduce access to advice. Large firms are investing in hybrid or tech enabled solutions to address the widening advice gap. Simpler solutions for clients with simpler needs makes sense. We have already seen a few tech-enabled advice models emerge offering remote advice. This trend will accelerate.
4. More orphan clients: Financial advisers need to evidence they are taking action with all of their work on Consumer Duty. An easy way to do that is to ‘fire’ a few clients. Some firms will opt to turn off the advice fee but to keep the client in their agency. This can quickly lead providers into murky territory.
5. Platform nudges: There is pressure for platforms to play a more active role in identifying poor outcomes and in preventing foreseeable harm. We think platforms should support financial advisers by using data analytics to nudge advisers to act when needed. Platforms can identify if there is a cheaper share class, if a charge looks out of line or if no change has been made to a client account for several years despite on-going charges being levied. Working together to deliver better client outcomes.
