Experts say that the Consumer Duty deadline, which is today, has increased focus on consumer needs and transparent decision-making but they are urging a shift from outdated “zombie” products to better options. They also anticipate stricter regulatory scrutiny and potential penalties for non-compliance.
LifeSearch CEO Debbie Kennedy says: “Consumer Duty has certainly focused our minds on the consumer, ensuring they’re at the heart of our decision making. This has meant not only recording our decisions and conclusions but being much clearer and more demanding in our rationale – and documenting it. That’s proving the case in determining and challenging ‘fair value’, and influences the language that we use with customers. We need to be radical in both of these areas, and really challenge our industry norms – to truly deliver good outcomes for our customers
“Another positive challenge that our protection part of the industry is addressing, is proactively taking the longer term view, beyond the initial protection advice. With a greater focus on ensuring that the recommendations and provisions that we put in place for our customers in the past, remain valid and relevant as their life changes.
“The topic of ‘annual statements’ has been a frustration for many years. At LifeSearch, we are working with insurers and fintech firms to ‘break the circle’, and provide our customers with timely reminders and helpful prompts about the protection they have in place and how they can easily get help.
“So, as we enter the second year under Consumer Duty rules, the industry will no doubt be challenged further. But that brings opportunities. Already we are seeing signs of a higher degree of specialisation within distribution, and demand for more collaboration with partnerships across the different financial sectors, as firms seek to fulfil their wider duty of care.
“For the protection industry in particular, we are starting to see increased demand from outside the protection space from firms and advisers who see ensuring clients’ protection needs as part of their duty of care. At LifeSearch, we’re working with more firms across GI, wealth and mortgage sectors – to support them and their clients with access to protection and expert advice in this area. Many we are talking to are looking beyond the signposting responsibility, and are strengthening their business, by accessing new underserved consumer segments.”
Hargreaves Lansdown head of personal finance Sarah Coles says: “From 31 July, products that are closed to new savers or investors will have to meet the same duties to consumers as those that are still on sale. But don’t be lulled into a false sense of security. These zombies could still eat your nest egg. If you’re going to protect your assets, you need to keep them out of their clutches.
“Closed products are known as zombies, because at first glance they may seem like a perfectly ordinary product, but look a little closer and they’re marching unthinkingly to the bitter end. Because they can’t attract new customers, they may offer low rates or high charges, and could end up consuming your cash.
“Child Trust Funds (CTFs), given to children born between September 2002 and January 2011, became outdated when replaced by Junior ISAs (JISAs) in 2011. While both CTFs and JISAs share tax benefits, annual limits, and lock-in periods until age 18, JISAs often offer better rates and lower charges. Transferring from a CTF to a JISA can save money and provide better options.
“Another zombie product is the Help to Buy ISA, closed to new entrants for over four years. Savings rates are low, with the best transfer rate at 2.75 per cent. Property purchase caps are £250,000 outside London, and the maximum government bonus is £3,000. Consider transferring to a Lifetime ISA for a higher property cap (£450,000), £4,000 annual contributions, and potential growth through stocks and shares. Transfers count towards the LISA annual allowance.”
Davies CEO Pino Vallejo says: “The 31 July Consumer Duty deadline marks an important milestone that financial services organisations have been working towards for many months. ‘Delivering good customer outcomes’ has been the mantra of the FCA during this time and, with the deadline for submitting Consumer Duty annual reports, and the extension of Consumer Duty to closed products, it’s now up to firms to show that they are delivering it.
“Reaching this deadline has not been a small task, but firms know it is not the end of the line. The six ‘Dear CEO’ letters published on the 16 May set out information to support firms in their final preparations, giving clear direction on priority actions and where the FCA perceives it will find shortfalls. The onus is now on firms to initiate the monitoring and improvement strategy outlined in their report and carry out their commitment to rectify shortcomings and enhance customer outcomes.
“Firms know that the stakes are high. Our own research found that 36 per cent of financial services firms have been penalised at least once in the past 12 months for failing to meet regulatory compliance demands, and almost half (43 per cent) of firms rated regulatory compliance as one of their top three challenges.
“The financial services industry now waits with bated breath for the FCA’s analysis. We know from previous experience that the regulator will pull no punches if it feels firms are falling short. It will closely investigate all firms that have failed to meet the mark and we can expect financial penalties to be significant for the biggest failings.”
