Consumer Duty and Distribution Governance

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Authorised fund managers are arguably ahead of some providers on getting ready to comply with the Consumer Duty (CD), because of needing to ask similar questions for Assessment of Value (AoV) and PROD.

However, while AoV requires consideration of many product value questions, it does not have the same focus on customer outcomes as in the CD, especially the focus on consumer understanding and consumer support.

The definition of good customer outcomes is something most fund managers are still grappling with and these are the issues we unpacked in our FBC corporate members meeting on 22 September 2022.

Hosted by FBC senior advisers Brandon Horwitz and Simon Hynes, the 1-hour open discussion provided the opportunity for FBC corporate members to chat through the issues and opportunities.

The Challenges

A big challenge for fund managers is that their products can be used in different ways, some as ingredients in a solution created by a third party (like a Model Portfolio Solution) vs. others which are designed to be an ‘all-in-one’ product (such as a multi-asset balanced fund, say).

While most fund managers aim to signpost how products can be used as part of target market disclosures, how funds are being used in practice is another matter.

The key challenge of information flow between fund managers and platforms / other intermediaries featured prominently, with an acknowledgement that it is inefficient for each fund manager to ask different questions to platforms.

The customer-facing documentation which fund managers produce came under scrutiny – including questions around understandability, acknowledging that regulation prescribes the content and format of many of them. This was alongside fund managers needing to ask more questions to platforms and intermediaries as to how and when these documents are presented to customers

Another key theme was whether the CD was really targeted at AFMs, given that AoV and PROD already apply (and aim to deliver similar outcomes), and the fact that relatively fewer ‘vulnerable’ consumers were likely to be buying funds directly without a financial adviser (compared with other financial services products).

Debate was further had around the FCA’s allowance for firms to make reasonable efforts, including data challenges, and also creative thinking about using qualitative approaches and sampling.

The need for the industry to take a lead in defining good customer outcomes was discussed, including coordinating to address the data availability issues.

Select key points:

Just a few of the key points made and discussed included that:

1) AFMs are on a journey where they need to articulate what good outcomes look like for retail customers.

2) Funds can be used as components of or wholly as ‘all-in-one’ portfolios by customers (and intermediaries).

3) AFMs are starting to ask questions of platforms/distributors, but more work is needed.

The full write up, including further key points, insights and best practices discussed, is available to FBC corporate members here.

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