New regulation often levels the playing field and the introduction of the Consumer Duty is likely to be a blessing for new mortgage advisers.
The Financial Conduct Authority introduced Consumer Duty regulations in July 2022, with implementation due by July 2023. If you’re just starting out you should adopt it now, instead of changing things next July. Indeed, as changing is difficult, this could be a real advantage.
A big part of the Consumer Duty for advisers is the requirement to understand customer vulnerability. Around half of consumers have some vulnerability — but firms don’t know who.
This means you need to assess all customers to establish
which ones have these characteristics.
Include in your deliberations how you will monitor the protection needs over the lifetime of the product
Many advisers adopted their own subjective assessment of vulnerability, but these have proved inadequate in several areas. They are generally inconsistent and don’t always identify all vulnerable customers.
Data-led process
As the Consumer Duty requires all advisers to have evidence to demonstrate they are doing the right thing, the only sensible approach is to adopt a data-led process. Advisers using a data-led approach are identifying the appropriate proportion of consumers and have systematic and objective evidence to demonstrate this to regulators.
Another big feature of the Consumer Duty is the need to monitor the consumer’s suitability throughout the product lifetime. For mortgages, this probably means annual reviews, or towards the end of any fixed term.
You have the choice to advise on the protection yourself or defer to a specialist
A data-led method to manage vulnerability is new and not present in standard customer relationship management (CRM) systems.
There are new systems on the market and they are integrated into mortgage CRM systems. So, make sure a CRM system has this integration in place, or at least on the development plan.
Differentiators
The Consumer Duty has been introduced to protect consumers, so do promote the way you are working as in the interest of your customers; do promote that you are asking health and lifestyle questions to understand their personal circumstances and that this is required under new regulations to protect consumers. This may be a differentiator from some existing advisers who don’t embrace the new regulations.
You should look at how you provide protection for these loans through life, critical-illness and income protection insurance. You have the choice to advise on the protection yourself or defer to a specialist.
Around half of consumers have some vulnerability — but firms don’t know who
Whichever option you select, do include in your deliberations how you will monitor the protection needs over the lifetime of the product.
The simple option is through annual reviews and some of the new systems are planning to incorporate real-time monitoring data that will prompt you if a customer’s circumstances change.
Although Consumer Duty compliance presents undoubted challenges to firms, it’s clear, with the right tools, processes and culture, it can offer a real competitive advantage.
This article featured in the November 2022 edition of MS.
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