In my previous article (click here), I outlined how our recent research on Consumer Duty preparedness identified three asymmetries that firms need to be aware of: namely, how value is attributed and evidenced; the ongoing service required by different types of clients, and the need for better sharing of client data across the value chain.

As a result of these discrepancies, there are two crucial challenges that the retail wealth management supply chain could face in implementing the new rules. This article will go on to look further at these challenges and what opportunities are open to firms in overcoming them – and in doing so address the asymmetries at play.

Our research found that nearly all advice firms consider themselves generally responsible for delivering good client outcomes. However, providers and advice firms need to work together and share data on their clients in order to ensure their products are reaching the intended target market. This is important if products and services are to be appropriately targeted to consumers and to avoid potential foreseeable harm.

Secondly, advisers told us that not having the required access to information from third parties risks the advice firm’s ability to ensure that clients get good outcomes. Advice firms expressed frustration that “glitches in the system often cause sticking points” in the distribution chain, and in the context of Consumer Duty that’s when advisers see potential for harm because they can’t get information and advice to the clients on time to get the outcomes they want or need.

Our research highlighted the factors that financial advice firms and other firms in the supply chain need to consider when addressing the asymmetries that exist, in order to ensure good outcomes are being provided to consumers.

Three of these are:

1. Developing segmentations:

• Consumer Duty requires firms to clearly define target markets and the products and services that are provided to these groups. Outlining a target market will help firms design their proposition accordingly and justifiably turn away clients that don’t match with the current focus of the firm’s proposition. Segmenting the client base around characteristics of financial sophistication will furthermore highlight how much support and interaction clients require. This approach can shape a more needs-driven approach to embedding value, over and above a more transactional assessment of investment performance.

2. Implementing a more structured approach to demonstrating costs:

• Time-tracking: Understandably, clients and some advisers were concerned about the impact that time tracking could have on the client-adviser relationship. But some advice firms we spoke to recognised that it can be a particularly useful tool to use internally within the firm to monitor the value delivered, highlighting how it doesn’t have to mean clock-watching for the adviser and the client. Against the backdrop of our survey showing that only half of financial advisers are confident that they can track costs incurred in delivering service to clients, demonstrating time that is dedicated to delivering the service can help evidence value to the regulator – and to clients. This also underlines the importance of getting time-tracking right and the role that best practice sharing by firms within the supply chain that have already adopted these tools, can play.
• Cost separation: Separating the cost of advice from the implementation could allow advisers to show more precisely where the value lies in the context of the overall service delivered. This would also highlight any issues with the flow of information across the supply chain and prompt action to be taken, if it is shown that clients are paying more than they should.

3. Collaboration up and down the supply chain

• It is clear that collaboration is going to become more crucial to all in the wealth management supply chain if all types of firms are to implement Consumer Duty effectively.
• Whether it’s about providers learning from advice firms about the impact on clients on letters of authority not being sent, the opportunity for platforms to use their data to alert advisers to more suitable or lower cost options or to spot errors, or in providers helping advice firms understand how to implement tools and strategies to better track costs, it was interesting to note from the conversations at our roundtable events that the will to share and learn best practice to document and deliver value already exists. The challenge now is working to ensure that the conversation continues between firms.

If collaborating can address the asymmetries whilst creating a stronger wealth management supply chain, that will surely be part of the puzzle in leading to more consistent, positive outcomes for consumers.

For more information on our work on Consumer Duty, or if you have a burning question about financial advice and wealth management you want researched, contact us at enquiries@nextwealth.co.uk.

Philip Leigh is Qualitative Researcher at NextWealth