Please note that the value of an investment and the income from it could go down as well as up. The return at the end of the investment period is not guaranteed and you may get back less than you originally invested.
The Consumer Duty is a set of rules and principles which are being introduced by the FCA on 31st July 2023, which are designed to enhance consumer protection and promote fair treatment for consumers of financial products and services.
The main objectives of the consumer duty are as follows:
- Outcome-focused approach: The FCA seeks to ensure that firms prioritise positive outcomes for their clients, focusing on delivering products and services that meet their needs.
- Exercise of due skill, care, and diligence: Firms are expected to act with the utmost skill, care, and diligence when providing services to consumers.
- Communicating clearly and fairly: The consumer duty emphasises the importance of clear and transparent communication with clients. Firms should present information in a way that consumers can understand, enabling them to make informed decisions.
- Providing services and products that meet consumers’ needs: Firms must offer products and services that are suitable for their target clients, considering their individual circumstances.
- Protecting consumers from harm: The FCA aims to ensure that firms take reasonable steps to prevent consumers from suffering harm as a result of the services or products they provide.
The Consumer Duty focusses on four outcomes which are as follows:
- Outcome 1: Consumers’ Best Interests: Firms are expected to act in the best interests of their consumers, putting them at the centre of their business strategies and decisions. This pillar emphasises that firms should prioritise delivering products and services that meet consumers’ needs and are suitable for their individual circumstances.
- Outcome 2: Communications and Disclosures: The second pillar emphasises the importance of clear, transparent, and fair communication between firms and consumers. Firms should provide information in a way that is easy to understand, enabling consumers to make informed decisions about financial products and services.
- Outcome 3: Products and Services Design and Performance: Firms should design and deliver products and services that perform as consumers reasonably expect and do not cause undue harm. This pillar aims to ensure that the products and services offered are suitable for the target clients and do not have hidden or misleading features.
- Outcome 4: Price and Value: The final pillar focuses on ensuring that consumers receive fair value for the price they pay for financial products and services. Firms should set prices that are transparent and reasonable, and the products and services should offer tangible benefits to consumers.
Comment
Overall, the consumer duty serves as a regulatory framework that promotes ethical behaviour, responsible practices, and a client-centric approach within the financial industry. It aims to create a more transparent, fair, and trustworthy financial market for consumers, ultimately benefiting them in their interactions with financial services firms.
The financial advice sector has faced challenges with its reputation due to a focus on sales-oriented practices in the past. At Nelsons, our commitment lies in achieving positive outcomes for our clients, and we view the introduction of the FCA’s Consumer Duty as an opportunity to enhance client outcomes further. We view Consumer Duty as a move towards aligning the industry with Nelsons client focussed approach and a positive, bright future for the financial services industry.
How can we help?
Alexandra Black is a Paraplanner in our expert Investment Management team.
For advice on or further information in relation to the subjects discussed in this article, please contact Alexandra or a member of the team in Derby, Leicester, or Nottingham on 0800 024 1976 or via our online form.
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