From Treating Customers Fairly, to Treating Customers Well
The Consumer Duty will bring widespread changes across the financial services industry, raising the bar on how it serves its customers.
I’ve previously described it as a shift from Treating Customers Fairly, to Treating Customers Well, and proving it. That phraseology seems to have resonated, as a way of summarising the evolutionary step that the Consumer Duty is intended to herald.
At its core, the Consumer Duty represents a significant cultural shift, one that should focus the minds of Boards and Executive teams of all regulated firms in our sector on the real-world outcomes of the customers we serve.
The current regime of ‘fairness’ still applies and has served us well. But at times it leaves firms more focused on compliance than necessarily good customer outcomes. Ensuring that our interactions with a customer are compliant – while important – doesn’t necessarily go far enough to help facilitate a good outcome.
This has become evident in recent years as we recognise that most people don’t read small print, or necessarily take the key messages they need to know from all the disclosures we make. Knowing that we have accurately disclosed information doesn’t necessarily mean that it has been understood, or acted upon, so it may not be leading to good outcomes.
This isn’t about guaranteeing good outcomes for customers, but it is about taking action to help them achieve them. Ultimately, it is for customers to make their own decisions about their finances, even if they receive advice, but the industry can do more to help with this decision making, and this is perhaps where the Consumer Duty can make the biggest difference.
This is particularly true for people making retirement decisions - where we’ve moved from a world where many had guaranteed pensions from their Defined Benefit schemes to a position where people effectively end up with a pot of money from their Defined Contribution scheme - which they need to make last through their later years.
Imagine for a second that your employer offered to pay you an annual lump sum as a salary, instead of weekly or monthly, and it was your responsibility to make that last the whole year. Exciting as it may sound, it would be a daunting prospect.
Retirement will be like that for many people, but it’s even more challenging as they have to make their money last for many years, often decades, with little certainty about how long they’ll live or what their future financial needs may be.
Putting ourselves in the shoes of customers trying to make these decisions will help us understand better how we can help. It may also change the types of conversations we have with them, whether verbally or digitally. We seem to have reached a position - through successive regulation - where we spend more time warning people of the pitfalls of poor decisions rather than telling them the upside of making good ones.
While not technically part of the Consumer Duty, the forthcoming review of advice and guidance seems closely interwoven. It needs to start to reverse this trend, focusing on what we can do to help people, as opposed to scaring some people into inactivity through successive warnings about the risks involved.
The Consumer Duty should herald a more constructive approach to helping consumers, and that has to be a good thing.
If you’re looking for support to meet the requirements, visit our Consumer Duty Hub – it’s packed with guidance and resources to help you put the principles into practice.
The information provided is based on our current understanding of the relevant legislation and regulations and may be subject to alteration as a result of changes in legislation or practice. Also it may not reflect the options available under a specific product which may not be as wide as legislations and regulations allow.
All references to taxation are based on our understanding of current taxation law and practice and may be affected by future changes in legislation and the individual circumstances of the investor.