Article by Phil
The Financial Conduct Authority has announced (7th December 21) that it will be introducing a new Customer Charter into financial services by April 2023. They have been consulting on a potential change to the rules since July and although the consultation period runs until February, they have now announced that they will be pressing ahead with the changes. The new rules should be announced by July 2022 and then firms will have nine months to implement the changes.
What will this mean for customers?
Essentially it looks like the FCA are tightening up the requirements to protect customers, which exist already in the Treating Customers Fairly rules. The TCF rules have been in place for a number of years now and act as a guide for how firms should act in several key areas including consumer confidence, clear information, suitable advice, meeting expectations and preventing barriers to good outcomes.
These requirements will remain in place, but the FCA want to introduce a requirement that firms must act in the best interests of retail clients, or that firms must act to deliver good outcomes for retail clients. The exact requirement is still to be determined. The FCA believes that these new requirements to act in the best interests and deliver good outcomes will improve customer experiences.
PIMFA (The Personal Investment Management and Financial Advice Association) which works on behalf of advice firms, are concerned however that these new requirements may be difficult to clarify in law and may lead to more “unreasonable” claims from customers. The “good outcomes” requirement is the one causing concern, and they hope that the FCA will be very clear on what that means in the rules.
We don’t expect that will be the case and for us we imagine it will be a case of business as usual. We don’t see any reason why a firm wouldn’t act in the best interests and deliver good outcomes under the current rules?
There is always the issue of the “poor firms” operating in the market anyway. They will always act in the wrong way regardless of the introduction of new rules. Some argue that better enforcement against these firms earlier by the FCA is the way forward.
Beyond this the FCA is also introducing requirements for firms to ensure that they are taking all reasonable steps to avoid foreseeable harm to customers, taking all reasonable steps to enable customers to pursue their financial objectives, and acting in good faith. Again, this is what we do in practice under the current rules.
A new set of detailed rules in expected in July.
One of the other areas highlighted by the FCA is charges. In particular unreasonably high charges and it specifically also mentioned exit fees. The FCA have looked at exit fees before and it seems that these may now be back on the table. This drew an immediate response from market leader St James Place who said that it would be unlikely to change its fee structure on the back of the new customer duty. SJP have charged substantial exit fees on their pension and bond products for a long time now, unlike most advice firms and fund managers in the market. They argue that their fees are clearly explained, but some commentators have long wondered why someone would wrap their investments up with a substantial exit fee when other (much better performing) fund managers, don’t lock customers in for up to six years? It’s puzzling especially when SJP are the market leading firm by volume of assets under management.
Chart: Main barriers to consumers switching investment platform
Source: FCA
The FCA’s own research has shown that exit fees are one of the biggest barriers to customers being able to switch providers, so it’s hard to see how these fees won’t be taken into consideration when the new customer duty is launched in 2023.
For the avoidance of doubt, as Independent Financial Advisers we don’t charge any exit fees nor do any of the providers we recommend.
