Evaluating Consumer Duty Compliance

“In a financial landscape shaped recently by uncertainty and more exacting regulatory standards, our survey gives voice to the experiences of UK millionaires with their wealth managers. Their feedback highlights a demand for clearer communication, better processes, and genuine value — goals that the industry must meet to evidence adherence to Consumer Duty and excel in meeting client needs.”

In early November 2023, the FCA wrote an open letter to wealth managers and stockbrokers clearly stating that much of the industry is not yet fulfilling Consumer Duty well enough.

The FCA has made it clear that perceptions from clients are not the only, or in some cases even a key, source of evidence of compliance. However, we believe that some elements of the Duty are more subjective, and client opinion is critical in understanding the gaps that the industry and individual providers need to close. So with the Duty coming up to a year in implementation, we asked UK millionaires on our MillionaireVue omnibus how well their main investment provider was performing on some of its key tenants.

Very positively for the industry, our data suggests that very few UK HNWs consider their products inflexible to their needs (3%), or that their investments aren’t suitable for their goals or risk appetite (2%). Plus, only 3% believe that they’re unclear how much they pay for the services they receive. Wealth managers have made great efforts in simplifying and clarifying their fees.

However, it’s important to note that 1 in 20 UK millionaires don’t think their main wealth manager is providing good value for money- and a further 14% are unsure if this is the case.

From all our work with wealth managers over the years, we know that this is strongly affected by the performance of their investments, and the last couple of years has been a challenging period in the markets. But some wealth managers can clearly do more to communicate effectively how markets are affecting their portfolios and justifying their action (or inaction) in adjusting portfolios.

This period of volatile markets has led some HNWs to add new providers or move relationships to find alternative solutions, so we expect UK millionaires to be far more informed and able to compare investment performance and the quality of service received in the future; making them more able to judge value for money.

Another area where some wealth managers can improve is the clarity and understandability of their communications – whether through client’s main contacts or provided centrally. Far from all HNWs believe that they get effective and clear communication that they can easily understand (85%), with 4% saying this is definitely not the case.

We know that the true test is for clients to explain in their own words what they pay, how their fees are structured, and what their understanding is from any communications received. This is the only way to truly get a clear picture of how well communications are understood and terms explained.

It’s also not possible to hide behind the fact that although clients may not fully understand communications, the adviser can explain the details when these products are part of an advised sale. Wealth managers need to work harder to make it clear in written communications everything that an advisor might explain to them.

Identifying vulnerable clients is also a key requirement of Consumer Duty and we believe that many wealth managers are under recording vulnerabilities within their client bases. Our MillionaireVue data suggests that 1 in 4 HNW have experienced a challenging life event, an ill health event, or been a victim of fraudulent activity in the past 12 months. Not all these events will have required their wealth managers to provide additional support or needed reviews of portfolios. But it’s important that wealth managers offer a way for clients to proactively inform them of situation changes that might need extra support, and not rely solely on disclosures in regular meetings.

As we approach the inaugural year of Consumer Duty, we urge wealth managers to listen to clients and consider these three calls to action to not only fulfil the FCA’s expectations, but to elevate the quality and outcomes of client service:

1. Enhance communication strategies to explain the impact of market fluctuations on portfolios and to demonstrate the rationale behind portfolio management decisions.
2. Elevate the clarity of communications, ensuring they are thoroughly vetted to be comprehensible outside of advisor-client meetings.
3. Institute robust processes that facilitate easy reporting by clients of personal circumstances that may render them vulnerable, ensuring they receive the necessary support.

Data quoted in this article come from MillionaireVue, a survey of n=500 interviews conducted with a representative sample of UK millionaires in May and early June 2024.

Savanta’s MillionaireVue is a quarterly omnibus with 500 HNWI’s in each of UK, Europe, US and China. For more information, please click here.

To find out more about the work our wealth & luxury team do, or to speak to one of our wealth specialists, please click here.