FCA Consumer Duty Regulations: Impact On Outsourced Paraplanners

The 31^st of July 2023 was the day that the much-discussed and, in some areas, feared FCA Consumer Duty regulations came into play (yes, another regulatory revolution!). We had a sense these were regulations on steroids and would significantly impact the financial services industry, but the depth of responsibility has surprised many. 

Paraplanners, one of numerous supporters and service providers to the industry, while not always client-facing, now have a range of additional considerations. It seems that every man, woman, and their pet pooch now fall under the financial services regulations, and rightly so in many cases. 

Where an advice firm seeks to engage an outsource paraplanning business, they need to know that their paraplanning partner will bolt onto their business, adding value to rather than interfering with their compliant operation. 

This article considers the finer details of the Consumer Duty regulations and how we have adjusted our services to ensure you remain fully compliant at all times.

Understanding Consumer Duty Regulations

So, where do we start? It is helpful to take a look at one of the principles behind the new regulations:-

“A firm must act to deliver good outcomes for retail clients.”

So far, so good; if your business model goes against this principle, well, it’s surprising you are still trading, to be honest. In reality, it’s unlikely any firms would consider themselves not to have been aiming to deliver good outcomes. So, it comes down, of course, to the interpretation of the diktats and a root-and-branch review of how your business can stay on the right side of this one. 

A review that is no doubt long into the rear view mirror. 

Not to stop at mere principles, there are the grandiosely named cross-cutting rules, which dictate how financial firms and those providing support services/products behind the scenes operate. All companies and individuals involved in the delivery of financial advice must:-

• • Act in good faith towards retail customers (another no-brainer?)

• • Avoid foreseeable harm to retail customers (planning)

• • Enable and support retail customers to pursue their financial objective (the concept behind financial planning)

At first glance, these new regulations are akin to teaching your granny how to suck eggs (a mental image that stays with you – sorry), but it’s the depth of the seemingly to-be-assumed responsibilities that might catch people out.

The Four Key Elements

As ever, the devil is in the detail, with the new regulations introduced to cover four key elements (referred to in the regulation as ‘outcomes’) of the adviser/client relationship. While we routinely provide notes and documentation to support our recommendations, these have been enhanced in light of recent changes:-

Outcome 1 – Products and services

Our in-depth research ensures that all our product/service recommendations suit the target market. We have an acute eye for details such as investment timeline, attitude to risk, age, and investment goals, as well as the suitability of any solution recommended based on the small print/finer details. 

The research and suitability process is ongoing, with products and services adapted based on the feedback of our clients and the changing commercial landscape. Supporting documentation is provided to the level of robustness required by your recordkeeping process. 

Outcome 2 – Price and value

Price, value for money and quality of service are crucial elements when we put together recommendations for financial planners. Where premium services are required, we compare and contrast with counterparts to ensure value for money. 

Our impartiality and varied client base means we have a broad perspective across markets and products, which many in-house teams simply won’t have. 

Outcome 3 – Consumer understanding

There have always been regulations regarding a client’s understanding of investment strategies, products, and service recommendations. “Fair, clear, and not misleading” will be imprinted on many readers’ brains. 

Historically, once the information was presented and explained, unless the client came back with any queries, it was taken that they understood what was happening. Consumer Duty regulations have taken this protection up several levels.

Working with our clients in accordance with their processes and needs, we provide a clear, concise, and easy-to-understand background to all recommendations. Where clients are deemed vulnerable, this is, of course, factored in. To put this into perspective, FCA data shows that 47% of adults in the UK showed some characteristic of vulnerability. This is measured using four key factors; health, life events, resilience and capability. 

It is the regulator’s fear that some investors were previously happy to proceed based on their adviser’s recommendations without having a fundamental understanding – not in the future. In order to help the end client, our reports have been adapted to make them easier to understand.

Outcome 4 – Consumer support outcome

As we alluded to earlier, the introduction of new client protections has placed a legal obligation on advisers to provide continuous support to their clients. This can take numerous forms, such as ongoing advice post-retirement and assessing the suitability of individual products and services on an ongoing basis. The client must now be warned of potential warning signs and the pros and cons of any likely changes.

Many advisers already provide a comprehensive support service, but the new regulations mean these are now enshrined in regulation. 

Here’s how we would propose you support your clients:

• • Remove any barriers to them getting in touch with you, maybe a calendly link in your email footer? Or a designated team member to field calls and reassure clients with a scheduled slot for call backs in your diary each week.

• • Designate a review date, same time, same place, each year so they know when you’ll be seeing each other

• • Prep well for the review, not just valuations and performance comparisons but CGT calcs, pension allowance calcs, review of the latest fair value assessments of the providers the client hold and all the other work that can be done in advance of the meeting to bring your A-game

• • Swift after meeting care, which means summarising the key takeaways, acting on follow-ups and transactions promptly and keeping your client informed every step of the way

For each of the above suggestions, we can help you to deliver a top-notch support service that meets the Consumer Duty requirements.

Grey areas

On the surface, this looks straightforward, encouraging a positive and respective adviser/client relationship, focused on client requirements now and in the future. In reality, there are still many areas of uncertainty and scenarios that may be tested in the courts. We can probably expect guidance updates going forward.

There is also a new requirement for FCA-regulated companies to undertake client behaviour analysis and segmentation, impacting how information is provided and the presumed level of experience. Do we hear an AI tech calling here? We’re keeping our finger on the pulse as much as possible on this, it’s only a matter of time!

What Are the Regulator’s Expectations?

We know, some of you have spent a career wondering that!

Regarding Consumer Duty, the FCA has four broad expectations:-

• • Firms are obliged to review their current working practices, bringing them into line with the new regulations.

• • There must be documented evidence to support the provision of products, services and advice.

• • Outcomes must be reviewed and monitored on an ongoing basis.

• • Any issues must be immediately remedied or mitigated – even if the client hasn’t spotted them.

One of the critical factors in this changing regulatory environment is the need for advisers to be proactive rather than reactive, providing advice and guidance to protect and benefit their clients. 

A paraplanner’s role 

Recently, there has been a significant increase in business outsourced to paraplanners. 

We now play an essential role in many financial services companies, to provide:-

• • Analyse client needs and identify any issues

• • Foresight analysis

• • Create financial plans and recommendations

• • Tax calculations

• • Create new services (and processes e.g. CIPs, CRPs)

• • Product and service research

Ongoing competition in the outsourced paraplanning industry has led to an expansion in the services available beyond the traditional ‘report writing’. We provide advisers with the in-depth information they require to make informed decisions and the evidence to back it up. Our involvement has the potential to significantly increase client-facing time.

As long as the paraplanners can demonstrate how they arrived at their advice, guidance, and service recommendations, all compliant with the above regulations, this is sufficient to show competency and invariably means putting the client’s needs first. The leg work is done for the planner to present and explain the recommendations to their clients.

 A new way of doing business

Undoubtedly, it will take time for the financial services industry to get used to the new FCA Consumer Duty regulations. The need to justify every decision and relationship, dotting all the i’s and crossing all the t’s, ensuring there is due process and supporting documentation for every decision made and advice given.

The times when a one-off explanation by your financial adviser was enough to tick the box of compliance are long behind us. The new FCA Consumer Duty regulations go above and beyond previous cover.

Summary

It is only natural with new regulations that there is a bedding in a period whereby your initial interpretation is refined and reworked. 

The concern and confusion that tends to follow the introduction of new regulations typically lead to renewed interest in outsourcing. Our team of expert paraplanners has experience across a range of financial markets and is able to deliver tailored services adapted to ever-changing regulations.

Want to find out more about how Consumer Duty can affect your business? Give us a call.