Consumer Duty Dear CEO Letter: Demonstrating Value

Last week the FCA issued a Dear CEO Letter to firms in the Consumer Investment sector to “help them implement and embed the (Consumer) Duty effectively”.


The FCA outline four key areas of concern, notably:

  • Mainstream investments: Concern surrounds clients receiving poor value, specifically in relation to paying for products and service that services are not needed, and firms not delivering on the services that they offer.
  • Higher risk investments: The FCA are concerned that some clients are being recommended high risk investments which are considered unsuitable.
  • Scams and Fraud: Customers are still being exposed to scams and fraud and the FCA is expecting firms to take more action to prevent their customers falling victim to scams and fraud.
  • Consumer Redress: Firms are expected to provide redress in good faith to clients that have suffered detriment. The FCA reconfirm that any redress should be paid promptly when it is due.

FCA concerns regarding adviser charging

As part of the letter, the FCA raised specific concern that “some consumers may be receiving services that do not meet their needs and represent poor value”. Reference is also made to the Evaluation of the impact of the Retail Distribution Review and the Financial Advice Market Review which highlights that since RDR and FAMR the majority of ongoing adviser charging is clustered at set price points. The FCA’s concern is that whilst most firms charge 0.5%, 0.75% or 1.0%, there is evidence to suggest that those charging the higher end offer little differentiation from those charging cheaper fees. Furthermore, some firms are using charging structured which disadvantage certain client types, for example, higher value clients are receiving “significant discounts” from the standard charging structure without any justification as to why.

What can firms do?

There has been a consistent volume of information and guidance on Consumer Duty provided by the FCA over recent weeks. As a result, firms should now have a good idea as to what expectations the FCA have, and that being able to demonstrate client value both with initial advice and ongoing service will be under scrutiny from July 2023.

Firms should therefore consider reviewing their charging structures and make an assessment as to whether value is being provided for all client types. For ongoing servicing, where firms are offering a one-size fits all service, it is unlikely that a firm will be able to demonstrate value where there is one standard service at a fixed percentage fee for all customers, with very little differentiation.

Where firms identify that value is not being provided (whether this is due to the service being provided or because of the client type), they should consider why this is the case and what action should be taken.

Going forward, we expect that firms will be able to evidence value through management information, and consideration should be given as to how this can be done.

Important Note: ATEB news is intended to provide general information ONLY. The content, including any views expressed or guidance provided, does not replace the need to comply fully with FCA Rules and Guidance. Unless you have discussed news article content with ATEB, and specifically how it relates to your circumstances, then ATEB disclaims all liability and responsibility and actions arising from any reliance placed upon it. For the avoidance of doubt therefore, any reliance you place on such information without our consultation is at your own risk.

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About the Author

Paul is a Chartered Financial Planner and is well on his way to a Fellowship. He has a thirst for technical knowledge and, while he advises on all aspects of financial services regulation, he specialises in pensions and investments.

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