Wealth managers and stockbrokers need to get their consumer duty houses in order

"Many in the wealth management industry have put off getting evidence around consumer duty directly from clients and consumers. It’s vital to prove to the FCA that clients understand your communications, know how much they pay, and what they should expect to receive for it.”

Back in early November, the FCA wrote an open letter to wealth managers and stockbrokers clearly stating that much of the industry is not yet fulfilling consumer duty in full.

It is incumbent on firms to be proactive and data-driven in demonstrating evidence to the FCA that consumer duty is being met. As such, we’ve worked with a range of wealth managers and investment firms to provide some of this evidence in three ways:

1. Communications testing
2. Ongoing client experience surveys
3. Onboarding client experience surveys

Communication testing is particularly important for any products advised (or in portfolios), that may be high-risk and/or complex. Communication must be clear, fair, and not misleading. And the FCA is very clear that providers must take steps to test consumer understanding and provide evidence of this.

One important lesson we have learned from our communications testing is that we cannot rely on the fact that if clients don’t fully understand communications, we can assume that advisers can explain them during advised sales. Wealth managers must put in extra effort to ensure that all the information covered by an advisor is clearly communicated in writing. This is hard work for both the communications and the client. But in the end, the FCA is clear that it’s required to make sure that true understanding is achieved.

Our communications testing framework looks at both stated and genuine understanding of communications. As almost all communications in investing are complex to a degree and could lead to significant harm if misunderstood, we tend to recommend a qualitative approach. But this doesn’t necessarily mean expensive – with our experienced team of researchers, our solution is cost-effective, timely and repeatable.

Annual or ongoing client surveys also play a role in reassuring the FCA. Some of the research we’ve conducted has asked about vulnerabilities to help our clients reassess the vulnerability status of their clients and get an idea of where client journeys are likely to need reassessment to better suit vulnerable client needs. They can also be used to make sure that clients understand what ongoing services they’re receiving and whether, for instance, suitability assessments were carried out.

In addition, our onboarding research for firms has checked that clients know what they’re paying and what they’re paying for. Providers need to disclose fees and/or charging structures consistently and clearly. If clients don’t understand this fully upfront this is a clear warning sign that communications and processes need to be reviewed and updated.

Getting evidence directly from clients plays a clear and important role in submissions to the FCA. It’s vital that the investment industries devote resources to gathering this and ensure they act on it. With our frameworks and experience, we at Savanta will make it as easy and cost-effective as possible.

Our communications framework is trusted by many top banks, investment managers and other financial providers and we’d love to discuss this in more detail for you and your business. 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.

Further reading:

• Reflecting on our work to date: supporting clients through Consumer Duty and beyond
• Consumer Duty communications testing framework