Keeping Compliant with Consumer Duty

30th August 2022 Adam George

The FCA's new Consumer Duty has been finalised in the last few weeks, and has created a fair amount of noise and apprehension in the financial services industry.

The rationale behind the new regulation is to drive up quality with respect to clarity of product information, ease of interaction and value for money - all from the retail client's perspective. Many commentators are suggesting this represents a significant shift and will lead to major changes for financial advisers and other regulated firms.

What do Advisers Need to Do?

To remain compliant in light of Consumer Duty, financial advisers need to be able to demonstrate the following:

  • All clients are getting a fair deal in terms of value for money - retail clients in similar situations that require a similar service should be paying the same fees.
  • Financial products are affordable for the client - this covers general affordability, but also if a more cost-effective financial solution can be recommended then the adviser will need to justify why a more expensive one has been favoured.
  • Clients are given appropriate support - firms need to act in their clients' interests at all times and support them in getting the most out of the recommended financial products and services.
  • Key product information is clearly explained - advisers must do their best to ensure each client understands everything he/she needs to know, bearing in mind levels of investment knowledge & experience.

There are other variants of the above list that include additional points, but if you're doing all of the above then the rest will take care of itself. For instance, the point about avoiding behavioural biases is often made, but if you have a good process that's objective and acts in your clients' best interests then such biases will be implicitly avoided.

More on Avoiding Bias

There are all sorts of biases to which human beings are naturally susceptible, and not just when it comes to investing.

We see the effects of subconscious biases throughout society, and especially so when it comes to emotionally-charged issues like Covid, the cost of living crisis or big political decisions. At such times, we naturally have our comfort zones. People tend to favour familiarity over opportunity (availability bias) and take comfort in hearing people who share the same opinion as them (confirmation bias).

There's a great deal of psychological research been done on this kind of thing in recent times, including the fascinating Dunning-Kruger study, but all that detail is outside the scope of this article. The key point is that, when it comes to giving financial advice, the very same biases can take over and influence decision making to the extent that it may not result in the best outcome for the client. This is why the establishment of an objective and systematic advice process is extremely helpful.

Use Models and Technology to Help

A good way to avoid these accidental biases and ensure an objective approach is to implement an reasoned, fact-driven decision-making process.

We've written articles before about identifying target markets and client profiling, and if you have this kind of thing in place already then it's a great starting point.

As alluded to above, similar clients should end up with similar outcomes for a similar price, so identifying these areas of similarity and what leads certain types of client to certain solutions is the first step.

Once this pattern is identified, you can begin to map out formally what characteristics about the clients have led them to have success with the implemented financial solutions. Start off with abstract, high-level categories and iteratively look deeper into the details of each case until a more granular and robust model emerges.

This is actually the same technique that underpins the majority of modern artificial intelligence (AI) solutions. A set of data about a subject is passed through a "trained" network where the attributes are weighted specifically to choose logical outcomes for the input data. Admittedly, the volumes of data in AI systems are huge and the neural network calibration will require several million records, so while it's not feasible for IFAs to implement such systems, the principle of having a logical decision path for advising clients can still be applied.

Of course, this is not to say that unmeasurable "soft" facts (feelings about ESG, trust in established brands, etc.) shouldn't form part of the process. It's more that the measurable attributes that lead to decisions about things like platforms and tax wrappers should be as deterministic as possible to eliminate bias and ensure fairness, thus ensuring standards set by Consumer Duty are met. This kind of process also helps IFAs demonstrate their independence.


Like all FCA regulation, firms should have a clear policy that explains what the advice process is and why the board members believe it conforms to the rules.

Despite the opinions of many, Consumer Duty is not a game changer in this regard, and if you've been running a client-first financial planning practice up until this point then you've probably got nothing to worry about. That said, this may still be an opportune time to conduct a review of your process and platform choices, just to see if there's room for improving the clarity and quality of your financial advice.

Contact Us to See How PowerPlanner can Help Your Consumer Duty Compliance

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