Page 27 - PIC Magazine Issue 21
P. 27

   NEW FCA CONSUMER DUTY RULES
What are they and what are the Obligations?
 Simon Callow is Chief Investment Offfficer at Asce
This article explains the four key consumer outcomes and the possible implications for firms involved in offffering financial service offerings and indirectly those that introduce them.
On the 31 July 2023, the FCA’s (Financial Conduct Authority) Consumer Duty Rules came into effffect. These new rules apply to UK regulated financial institutions and identify four essential outcomes that consumers must receive. The FCA emphasises that these outcomes are pivotal for maintaining trust, ensuring fairness, and delivering value in the UK financial services sector.
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Understanding the Four Outcomes
Below are the four outcomes that consumers must receive and, crucially, that regulated firms need to evidence to prove that they are delivering for their end clients:
Products and Services
Product Design: To ensure all products and services are fit for purpose, designed to meet the needs, characteristics and objectives of a target group of consumers and distributed appropriately.
Target Audience: They should be promoted to consumers whose needs align with the features and benefits of the products or services. This ensures relevance and appropriateness.
Price & Value
Fair Value: The cost of products and services must represent fair value for consumers. This means prices should be commensurate with the benefits, features, and quality of the offerings.
Price/Benefit Balance: To ensure that all consumers receive fair value and that there is a reasonable relationship between the price paid for a product/service and the overall benefit a consumer receives from it.
Consumer Understanding
Information Provision: Firms should provide all necessary product information and tools to help consumers make informed decisions.
Clear and Transparent: All information should be adequate, clear, and relevant and should be provided so that consumers can understand the intricacies and implications of financial products and services.
Customer Support
Meeting Customer Needs: A firm should provide support that aligns with the consumer’s requirements, thereby enabling them to realise the benefits of products and services.
In terms of Consumer Outcome One, the FCA is laying particular emphasis on the matching of products and services with the unique needs of customers. In simplified language, the FCA is asking that
an investment solution be designed for the needs of its customers.
In marketing language this is sometimes known as client segmentation.
The FCA’s requirements under Consumer Outcome One begs the question how suitable are many investment solutions and services promoted to vulnerable clients?
In reality, many investment solutions are generic and promoted to the broader consumer market and in many cases take little account of the unique needs of vulnerable clients. There is little product differentiation between a product offered to a high net worth individual with capacity and a vulnerable client. This may have to change over time.
Vulnerable Clients - Tailored Investment Philosophy & Commitment
At Ascencia Investment Management, a specialist discretionary
fund manager (DFM), we are committed to the mantra that vulnerable clients’ needs are at the heart of all our products and services.
We offer a consistent approach to consumer vulnerability, ensuring it’s understood and embedded across all business areas.
Our experience of working with the unique needs of vulnerable clients has underpinned our investment philosophy. Many vulnerable clients are in effect in income drawdown. Accordingly, two key investment philosophy rules incorporated into our vulnerable client investment solutions are, firstly, the need for elevated levels of portfolio liquidity (ensuring the ability to draw capital) and, secondly, the requirement for lower levels of portfolio upward and downward gyrations, sometimes known as volatility.
We promote the investment philosophy tagline, “a smoother investment journey” to convey the concept of the investment experience we are trying to deliver to our customers.
Investment Performance - Independent Data Monitoring
Under Consumer Outcome Two, the FCA puts notable emphasis on the relationship between Price vs Benefit delivered by product. In short, the FCA expects investment performance to be monitored, thereby ensuring customers are receiving the appropriate outcome for the fees being paid.
To assist with this FCA obligation, Ascencia has become a signatory and contributor to both Asset Risk Consultants and MPI STEP, who are both independent auditors of investment returns. Our clients can request quarterly investment reports to monitor our investment returns and the risk taken to deliver these returns.
To conclude, the FCA’s Consumer Duty framework, is likely to improve consumer outcomes over the medium term and also require investment solution providers and introducers to evidence how the four consumer outcomes are being met.
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