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Protection and the Consumer Duty
The Financial Conduct Authority has now published the new Consumer Duty rules and guidance.
The new rules come into force from July 2023. Here we look at what this means for you and your clients, and how we can help you strengthen your protection conversations.
These changes should help to reassure clients that it’s your regulatory duty to monitor and review the products you're recommending to ensure they continue to meet their protection needs, beyond traditional life cover.
Consumer Duty at-a-glance
The new Consumer Duty from the Financial Conduct Authority (FCA) marks a fundamental shift for the financial services industry.
Sitting at the heart of the changes is the new Consumer Principle, which will move the bar from 'treating customers fairly' to striving to deliver good outcomes for clients.
The rules come into force on 31 July 2023 for new and existing products and services that are open to sale or renewal - and July 2024 for closed products and services.
What the new Consumer Duty means for you
The new rules set out a framework that means adviser firms, of all sizes, will need to measure whether they’re delivering good outcomes for customers across a number of areas.
This includes the quality of communications, the appropriateness of the products that have been recommended, the quality of the service offered and whether support is provided to help customers make financial decisions about their future.
Underpinning this central principle are three rules to help firms understand the FCA's new expectations on how they should conduct themselves to achieve good outcomes for their clients. Firms must:
- Act in good faith towards retail customers
- Avoid foreseeable harm to retail customers
- Enable and support retail customers to pursue their financial objectives.
This greater focus on consumer outcomes means you and your firm will be required to actively assess and evidence how your actions and processes are working to deliver good outcomes for your clients.
What it means for your clients
With these changes, the FCA is acting to ensure all advisers understand their obligation to help to better protect the interests of consumers. And we might find the new rules help to improve the reputation of the financial services industry in general for consumers, giving them more confidence in seeking and receiving financial advice.
Of course many adviser firms already work with the best outcomes of their clients in mind, particularly when discussing protection. However, the Consumer Duty should ensure your clients understand it's your regulatory duty to deliver good outcomes for the future and to protect against their biggest protection risks.
And that it's important to consider their needs beyond basic protection, such as life cover to protect a mortgage, to help them build better financial resilience into their lives.
How we can help
We've created a dedicated Consumer Duty support hub packed with resources, guidance and tools, as well as links to our Fair Value Assessments, to help you prepare for Consumer Duty. Or, take a look at these resources:
- Why Royal London: we've created paragraphs to help you explain the value of a Royal London plan, and the additional benefits and support clients can expect
- Building value through a menu plan: this sales aid can help you show the value and quality of your advice, when it comes to your client’s protection needs
- Family income benefit - A cost-effective alternative to providing cover for your clients: this sales aid looks in detail at the family income benefit and how this could be a cost-effective alternative to lump-sum protection. Great if clients are on a tight budget.
We also have a range of tools and services to help:
- Value of menu tool: show clients how a menu plan can be tailored to their needs and budget, as well as offering more opportunities to claim
- Helping Hand: this support service is there for your clients, whatever stage of life they're at, and as a plan owner it doesn't cost them anything extra to use
- Find the right trust: use this tool to help you identify the correct trust structure and form to help protect your clients' further.
Read our Consumer Duty research
We wanted to understand what advisers like you think about the changes and how they plan to adjust their existing business practices.
Our latest research showed almost 1 in 5 advisers (19%) said they hadn't heard of the new Consumer Duty. Read our full report to find out what else advisers are saying about the Duty - along with answers to these key questions.
- Do advisers believe the Duty will better protect consumers?
- Will they be ready in time?
- Who will they look to for support?
- Will they speak to their clients about the Duty?