Preparing for Consumer Duty: Defining Good Outcomes and the Role of Technology

This past July, the Financial Conduct Authority (FCA) handed down its handbook for the Consumer Duty. Within the handbook, the FCA set out some guidelines to help companies address the notion of determining "good outcomes." This blog is to provide some perspective as to how wealth management firms should define "good outcomes" and how technology will help with complying with the Consumer Duty. The FCA has taken steps to address a consumer’s best interest just like the SEC in the US, CSA out in Canada, and MAS out in Singapore. Suitability and how to define it has truly evolved and the FCA has taken its own method to ensure the public is being protected.

Defining Good Outcomes

First, let’s define good outcomes, what does this mean? Or better yet what should it mean? Let’s consider what defining a good outcome means to both the consumer and the advisor. The consumer is hoping that they are being guided and educated in such a quoway that they will be in a better position financially in the future than they presently are. This should also be inclusive of the fact that they understand risk and the level of risk they are willing to take for a certain level of return. As a former advisor, I prided myself on making sure that my clients had a clear understanding of the road we were taking, the reasons for it, and level setting expectations. Often, advisors misinform and over promise, which leads to unpleasant clients and circumstances. It is imperative that advisor firmly understand a consumer’s risk tolerance and overall financial picture when prescribing a recommendation to their clients. This is what good outcomes should mean.

Since the FCA will conduct its exams of firms let’s focus on the measures firms can take to provide good oversight of the Consumer Duty and ensure they are trying their absolute best to provide good outcomes to consumers. The FCA has indicated that technology will play a significant role in complying with Consumer Duty. A firm that has the tools in place to demonstrate that they are capturing data effectively and are also utilizing that information to help consumers will thrive.

The Role of Technology

Let’s take a step back, and assume a world where an advisor has guardrails that will help guide them done the best path to move forward with their clients. A path that will capture and maintain records of a client’s risk and financial records. While also ensuring that the recommendation that they are proposing is truly suitable for the client. Pushing that even further, notifying them if the recommendation is not suitable or better yet, a better alternative exists that they were not aware of. Would it provide comfort to the advisor knowing they had this level of protection?

Let’s now consider the view from compliance personal. They could have controls at their disposal that will notify them when an advisor makes improper recommendations, deviates from a client’s risk tolerance, notifies them when a client invests in an investment that they clearly are not savvy enough to have, and a case when communications between an advisor and a client that requires some oversight because of language used. These are just a few of the scenarios that compliance professionals within an organization can oversee the handling of clients. All of which allows a firm to understand where gaps exist and if their personnel are taking proper measures to truly help clients through their financial journey.

Like many firms, they all have unique businesses, practices, clients, procedures, and even customers. But what if they all had the same or similar method of determining what a good outcome is? The FCA expects firms to monitor the things that they are able to control. Materials that consumers will have access to, the communication/interactions they have with representatives of the firm, the products sold/purchased, and future adjustments or changes made, are all things that firms have control over. The question becomes do companies have the technology resources available to not only apply these methods, but more so the technology to monitor these methods.

We presently are in the digital era of business. Everything from an email, text, phone call, social media post, etc. are on record. Records to be monitored, captured, and stored for supervision and compliance oversight. The FCA has made it clear that monitoring communications and interactions with consumers is a vital part of the Consumer Duty. The essence of capturing all the information presented or shared with a client through their financial journey becomes a pivotal part in delivering good outcomes. A firm who can demonstrate this can easily protect themselves and their clients from foreseeable harm. They will be able to demonstrate that they have presented material that is simple to understand and free of jargon and useless information. They will also be able to capture interactions with clients in the form of in person meetings, virtual meetings, emails, phone calls, and text messages. They can also monitor service calls and interactions to make sure great service has been provided to consumers. In turn, the consumer should have a clear understanding of what has been proposed and established. Clearing the way for a better client experience.

We at NICE Actimize, have a lot of experience in helping clients utilize technology for compliance surveillance. The regulatory environment will continue to change and adapt to a more client-centric space. Thus, forcing oversight into a firm’s behaviors, practices, and procedures. Providing firms with the proper level of controls and oversight will continue to be important for effective and efficient business practices. Capturing and monitoring the data effectively will help firms navigate through a customer journey knowing that they have done all their due diligence to put these consumers in the best position possible to succeed. The question I ask, how are you preparing to help provide your clients with good outcomes, and what role will technology play for your organization along the way?