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The first Consumer Duty Board Report is has now passed. This is an internal document, although we’re sure that the FCA will undertake sampling. Its purpose is to inform senior management about progress towards achieving good quality Consumer Duty outcomes, focusing on the 4 core outcomes:

1. Products and Services
2. Price and Value
3. Consumer Understanding
4. Consumer Support.

What is expected of firms now the Consumer Duty deadline has passed?

By way of example, let’s use Price and Value outcome. In the Consumer Duty finalised guidance FG22/5, the FCA lists some typical questions it might ask firms in this respect, such as:

1. Can the firm demonstrate that its products and services are fair value for different groups of consumers, including those in vulnerable circumstances or with protected characteristics?
2. If the firm is charging different prices to separate groups of consumers for the same product or service, is the firm satisfied that the pricing is fair for each group?
3. What action has the firm taken as a result of its fair value assessments, and how is it ensuring this action is effective in improving consumer outcomes?

If asked, how would you answer these questions and provide evidence? Let’s break the questions down further:

• Have you segmented clients in accordance with Product Governance PROD requirements? This is a way of demonstrating that you have grouped consumers.
• Do you know how much it costs you, on average, to deliver the product or service to a segmented group? While we accept that this will vary, assessing an average cost of delivery is good business practice and provides a good benchmark.
• Can you demonstrate a correlation between client needs, characteristics and objectives in each segmented group, and the price they pay, taking into consideration the cost of delivery? This is where outcome monitoring management information comes in
• How do you define fair value?
• How do you assess fair value?

Good Practice Example

Core infrastructure

A firm has addressed the PROD requirements and updates this annually. One of the segmented groups identified is ‘Clients in decumulation with ongoing servicing needs’. This group has been further sub-divided based on funds under management and product complexity.

The needs, characteristics and objectives of this group are clearly documented, examples being:

• sustainable income in retirement to last well beyond expected life expectancy, ideally with minimal capital erosion
• knowledge and experience levels sufficient to understand non-complex retirement strategies
• Capacity for loss sufficient to not require high risk strategies.

The firm has a well-defined and consistently used business process for the delivery of this service.

The firm has analysed the cost of delivering this service and updates this annually. The parameters used in the analysis include staff costs, business overheads averaged per client, the hours required for each role (admin, para-planner, adviser) per process component (disclosure, fact finding, etc), and the complexity of the products. This produces an average per client cost of delivery.

They have also separately analysed product costs, and any related costs such as fund charges and platform fees.

Finally, they have set decency levels and fee tolerances whereby if the cost of delivery to the client is outside defined tolerances, this is flagged.

Monitoring Outcomes and MI

In terms of monitoring, and being able to answer the FCA questions, the firm has a business objective to ensure that all client reviews are undertaken in a timely manner, in line with client needs, characteristics and objectives, to a good quality, at a fair price providing demonstrable value.

They set the following benchmarks:

• 100% of reviews completed before the review date
• All reviews to be graded from file audits as suitable
• The recommendations are in line with client needs, characteristics and objectives
• Client understanding and satisfaction levels are high
• The cost of delivery to the client is within the range of 10% below – 30% above the defined standard cost for the service (product and provider costs have been separately assessed as providing fair value).

The Management Information System (MIS) produces collated monthly MI reports as follows:

• Review completion rates from back office system
• Results from internal and external client file review audits
• Client survey results.

Monitoring of Key Performance Indicators (KPI) show that:

• 97% of reviews were completed on time
• File audits statistics are: 72% Suitable, 24% Unclear, 3% Unsuitable
• File audits show that for one case, there was a ‘no change’ recommendation even though the client needs, characteristics and objectives have changed
• File audits show that for three cases, the cost of delivery to the client breached the defined tolerances
• Client surveys show high levels of client satisfaction, average understanding and that a small number did not read the suitability report.

The firm then uses more detailed metrics to establish root causes:

• An analysis by adviser shows that the majority of poor results were attributed to one adviser
• T&C MI showed that the adviser was senior and longstanding, had not been assessed as competent in the past 12 months, had poor file audit results in general, was working under minimal supervision, and was using non-standard suitability reports
• Further analysis demonstrated that only a very small proportion of all client reviews, by all advisers, resulted in ‘change’ recommendations
• The standard suitability report format had recently been amended by compliance but had not been independently tested for clarity.

As a result of this monitoring, the firm implemented remedial actions to address the issues, including training, increased monitoring and further client feedback.

It's important to note that adherence to the good quality business processes in itself, does not meet the Consumer Duty outcome monitoring requirement. For example, completing 100% of client reviews on time and in accordance with the defined business process, is insufficient. What needs to be measured is typically the quality of service delivery and client understanding.

For further reading, the FCA has recently conducted an Insurance multi-firm review of Consumer Duty outcomes monitoring. Although insurance based, the review contains extremely useful information across all financial services sectors. A must read for compliance staff and senior management.

Our View

It can be argued that the Consumer Duty requirements have been around for decades, albeit clothed in various guises. The need for good MI has always existed, but it is now clearer what the FCA expects of firms and the setting and monitoring of good outcomes is of paramount importance.

Don’t just think process; think customer journey.

Don’t just think data; think about what that data means to the consumer.

Action required by you

You may well be on top of all this and if so, give yourself a round of applause. If not, then perhaps start with a review of core processes (e.g. new business and reviews), and for each stage of the process, consider the objectives, benchmarks, KPIs and metrics needed for outcome monitoring, but with a view to what the customer experiences.

So, for example, in respect of disclosure documents, your objective might be that the customer reads it, or has it explained, understands it, that it is fair, clear and not misleading, is technically accurate, and is issued at the front end of the process. The customer journey (or experience) is subtly different, in that what might be wanted is an easily readable document that leaves the customer clear about what services will be provided, how they will be provided and when, and how much it will cost.

Once you start thinking from the customer’s perspective, you can define the benchmarks, KPIs and metrics needed to monitor if the process is delivering good Consumer Duty outcomes.

Think beyond simply gathering data; challenge what the data means for consumers.

If you’d like further assistance or guidance in setting up an Outcomes Monitoring Management Information System, please speak to your support consultant or contact us.

Written by Huw Reynolds, Director