All FCA-regulated firms should, by now, have put in place their implementation plans for meeting the Consumer Duty requirements by 31 July 2023 (a later date applies for legacy products).
In many ways drawing up the plan was the easy part. Now businesses need to consider the practical implications of meeting the cross-cutting rules and the four outcomes.
The Consumer Duty should be the catalyst that encourages advisers and pension providers to consider the customer through their whole journey. This means thinking about the impact of a whole range of activities including product options and features, pricing, service and support mechanisms, marketing material and other customer communications.
Thinking specifically about the marketing and distribution of SIPPs I see an immediate issue with the terminology. SIPP stands for “self invested personal pension” and yet the majority of SIPPs aren’t “self invested.”
The FCA has made it very clear they want customers to be given information that they understand, so providers and advisers need to ensure that their customers not only understand the product but also the features of that product – for example in the case of SIPP investors it will need to be absolutely clear what investment options are permitted.
Another contentious area in the context of SIPPs is the validity of disclaimers signed by customers. A number of FOS determinations have already thrown doubt on the legitimacy and value of such disclaimers and the Consumer Duty need to equip customers to make effective decisions will reinforce such doubts.
An issue which has received a lot of attention from the FCA over many years is, “retained interest on cash deposits” – this applies not only to SIPPs but also to investment platforms.
Back in 2015 in CP15/30 the FCA estimated that the SIPP industry earned £60m from retained interest charges. Subsequently they introduced new disclosure requirements specifically relating to retained interest. CP21/32 restated their concerns about significant and sustained cash holdings– particularly among non-advised customers – in all non-workplace pensions including SIPPs.
With the low level of cash deposit interest rates persisting for several years, the issues relating to retained interest were largely forgotten but as interest rates start to rise the impact of this on both customer value and provider revenue streams grows.
All providers will need to pay particular attention to the Consumer Duty requirements related to “fair value”. The FCA describes this in some detail in its Finalised Guidance FG22/5 and says that in order to assess if a product provides value firms must consider, “the total price customers will pay, including all applicable fees and charges” over the lifetime of the product.
Some providers may argue that “retained interest” is not a fee or charge but disclosing the impact of retained interest, and any other fees and commissions received by the provider, will be challenging.
Another area that will need careful consideration as part of the implementation plan is the treatment of “orphan” clients – those customers who were originally advised but are no longer.
Those providers that distribute their products through financial advisers are likely to have to devote considerable time and effort in plotting the customer journey for these orphan clients, and then ensuring that the support provided for these customers meets their needs.
Similarly, and importantly, the identification process and subsequent treatment of vulnerable customers will also be a vital component of any plan.
One of the attractions of a SIPP is that it can provide a lifetime solution to an investor’s pension needs through accumulation into decumulation. A large proportion of the SIPP market remains unvested and the transition into retirement through the various “Pension Freedom” options is an area that has already attracted a lot of regulatory attention.
There is likely to be considerable scrutiny of providers and advisers Consumer Duty plans for customers approaching or already on the transition path. This is arguably the most complex part of the pensions landscape, and the consumer understanding outcome is key. The FCA sees providing customers with the information they need and understand at the right time in order that they can make informed decisions as paramount.
These few examples of some practical implications of the Consumer Duty requirements hopefully demonstrate that delivering an effective plan by 31 July 2023 will require considerable work and resource. Regular oversight of the plan by the board or senior management will be crucial as will challenge from the Consumer Duty champion.
It is not too late for organisations, both providers and advisers, to undertake employee and customer research to identify and understand the gaps in the customer journey between current practices and those demanded by the Consumer Duty requirements. But time is of the essence if these gaps are to be clearly documented and remedial action initiated where necessary.
John Moret is principal of MoretoSIPPs consultancy and one of the UK’s most experienced SIPPs experts, commentators and speakers. He has worked for Suffolk Life and several other SIPPs providers. He is chair of advisory business Intelligent Pensions and CX insight business Investor in Customers.
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