We talk to the UK firm – an outsourced platform encompassing global custody, digital technology and investment administration – about Consumer Duty, the forthcoming new regime that is going to have a significant compliance impact.

Wealth managers aiming to comply with the UK’s new Consumer Duty regime in just over two weeks’ time face a challenge to be ready, Multrees Investor Services says.

Under this new principle, firms should provide customers with products and services that meet their needs and offer fair value. Customers should receive communications they can understand. They should get the customer support they need when they need it.

The purpose of the Consumer Duty principle, which kicks in from 31 July, is to ensure wealth managers and others in the UK financial services space do what they say they do. It’s another move by the Financial Conduct Authority to raise standards.

A big part of complying with the Duty is documenting all the links in the “value chain” – and that means a lot of data, Multrees, a provider of outsourced custody, execution and trading, investment administration and services to over 20 Wealth Managers and their 12,000 plus clients, told this news service recently. 

“Everyone in the sectors agrees that they want to deliver good outcomes to retail customers. The challenge of implementing the duty is that if it is not documented, then it isn’t done. And getting that evidence together by 31 July is the challenge,” Rachel Robertson, Chief Risk and Compliance Officer at the firm, said. She spoke alongside Chris Fisher, Multrees’ CEO. They’ve been leading a project to implement the Consumer Duty at Multrees and build a programme to operate with the new principle from the 31st of July.

While the wealth industry might have hoped for some relief from the run of new compliance regulations in recent years, such as MiFID II, and before that, Retail Distribution Review, there’s still plenty of new rules to deal with. A continuing source of frustration can be that, despite all these rules, outcomes aren’t always what they should be. Consumer Duty appears to be part of an attempt to shift expectations, indeed, the whole culture. 

Consumer Duty will require firms to review their range of products, how they communicate, and to consider changes in areas including governance and accountability, reporting, product design, distribution, servicing, and staff training. 

Absolute and relative
It is important for firms to understand the distinction between absolute and relative measures of value. The duty  doesn’t necessarily require firms  to deliver, relative to the market, the cheapest service, but they must deliver absolute  fair value, Robertson said. 

An important job for firms is gathering evidence of how they deliver good outcomes, like the price and value outcome. For a small firm, it might be relatively easy compared to a large firm, but on an absolute basis – they’ll be working with fewer resources, so it will be just as onerous on them , she said. 

Consumer Duty is about a cultural change that the FCA wants to encourage across the financial services sector, she said. 

Fisher said, “It [Consumer Duty] is a very important programme. In the sector that we operate in it has mostly been evidence gathering exercise for a culture and understanding that already existed in the fraternity of high quality holistic wealth management firms. However on the outskirts of the wealth management industry there are still issues that arise, and a change in culture is still required, as shown by several regulatory actions against high pressure sales tactics resulting in poor advice in recent times.”

He referred to the cases stemming from certain transfers out of the British Steel Pension Scheme as an example.

A great deal of the work that Multrees, and the industry, has to do for the Duty is “evidence gathering”, he said.

Robertson said the FCA will be looking at various signs that firms have a problem, and aren’t delivering good outcomes. For example, if there were a lot of clients leaving a business, the regulator would want to know was that because a product/service wasn’t suitable for clients, or the price was wrong, or they did not understand what was being offered, and so on. 

Fisher was asked if firms going through mergers and acquisitions raised Consumer Duty challenges, because getting ready for such a regime might be harder when companies are being put under one roof, with different teams, IT systems and other features all having to be linked up.

“There is a Consumer Duty lens that puts perspective on that [M&A] activity. In fact, it may increase competition. Merger activity almost always creates spin off new entities of advisers who believe the acquiring entity does not provide the best outcomes for their clients, and therefore they leave and setup new independent entities.  In some ways this sort of competition and focus on the consumer is the point of the regulation,” Fisher said. 

Talking more generally about how wealth management is evolving, with mergers of some firms as they go for scale, and the continued existence of boutiques, Fisher noted that ultimately, what wealth management is about, and what Multrees does to support their clients is “selling trust” – and Consumer Duty is central to this.