Earlier this week I took some new joiners in our firm through the way our industry works: the various participants in the value chain, and the way each of them makes money.
Then I talked to them about how it used to work before the Retail Distribution Review. It was much more difficult for them to understand – because, in truth, it didn’t make much sense.
Why would anyone have paid 8 per cent upfront on a bond that would provide a much lower return?
Why would they have paid two years’ worth of premiums in commission before they got anything back?
It all feels so removed from the industry of today that it’s hard to remember.
I have a similar feeling about the consumer duty rules.
While the industry is making changes relatively rapidly now, in a few years’ time I think it will have undergone a transformation.
We will have taken another great leap forwards, towards being more consumer friendly, towards being more transparent, and towards delivering value in every client interaction.
And this regulation will be viewed as a watershed.
This time last year, firms had done all the preparation they felt was possible and were in watch-and-wait mode.
When the deadline hit, what would the new regulation mean? How would the regulator enforce it? Would it bring incremental change, or a revolution?
A year on, the Financial Conduct Authority has shown that it means business.
Firms that truly believed they were doing the best for their customers have had to look hard at whether that’s really the case. And for some it’s been a wake-up call, if only because the documentation wasn’t there.
One major effect has been a focus on the annual review.
The regulatory shot across the bows in the form of February’s requests for information about delivery of ongoing services has prompted firms to look at how they’re delivering value, and many have gravitated towards making sure that the annual review is completed as their prima facie evidence.
The risk, of course, is that this becomes a tick-box exercise, a review that’s little more than playing back to the client their valuation and performance, with a checkmark in the system to say you’ve done it. Will the regulator be satisfied with this as evidence of ongoing value? I’m not sure.
Fortunately, many firms are working hard to define what true value looks like for their clients, and how it can be demonstrated and recorded.
Some are building sophisticated value matrices. Others are putting in place more straightforward metrics: delivering a meaningful annual review, delivering a cash flow plan for those clients that will benefit from it, being there for their clients when needed.
Some are asking the clients themselves: 'Are you receiving value from the services we’re providing?'
