The FCA’s review of ongoing advice practices highlighted areas for improvement. In this article, Jayne Brown, Lead Consultant at Simplify Consulting, explores the importance of remediation, key challenges, and how firms can enhance customer outcomes.
Following the ‘Dear CEO’ letters issued to 20 of the largest adviser firms in the FCA’s assessment of ongoing advice, there was anticipation that this would be the beginning of a large-scale remediation, similar to Payment Protection Insurance remediation. This week, after many months of waiting, an audible sigh of relief could be heard across the industry. The FCA reported that it found less than 2% of cases where ‘no effort’ had been made to offer an annual review where it was due. While action is clearly needed here to remediate these customers, more of a worry is that in 15% of cases, clients either declined or did not respond to the firm’s offer of a review.
Why is it important?
Even though Consumer Duty is a new regime, and we cannot retrospectively measure firms against these principles, the industry has been adhering to the Treating Customers Fairly (TCF) rules for nearly 20 years now where charging people for something they aren’t getting would not be considered as ‘fair’.
Going forward under Consumer Duty, one of the main aspects is to ensure value for customers throughout their relationship with a firm and the services provided. This can be best achieved through the ongoing advice process, reconnecting with customers, understanding their current circumstances, and establishing if anything has changed.
The value of advice therefore needs to be evidenced. Assessing existing products and investments and their suitability isn’t enough. Analysing how the customer has benefited from the product including a justification of costs is required through a value assessment. The fact that firms could have been charging for an undelivered service requires rectification.
What are the challenges with remediation?
When taking action to remediate and redress customers through an issue such as ongoing advice, challenges exist, and some key elements need to be thought through and carefully planned.
- Time and Resources
Planning for remediation activities can often lack dedicated resources that have the capability to understand project governance and requirements. This means that often SME resources are allocated, to complete the remediation tasks ‘side of desk’ alongside business-as-usual priorities. The problem with this is not only the project taking longer but it can lead to key considerations being missed. In our experience, this is fundamental reason why issues are not completely resolved, and due to the elongated timescales, it can often lead to more customers being affected.
- Scoping and Impact
Often, not enough time is allocated to understand the scope of the issue and the extent of customers that have been impacted. Before delving into data requests and data analysis we need to know how customers need to be dealt with, what resolution is needed as a result and gain an idea of the underlying cause of their issue in order to determine an appropriate solution.
- Quality of Data
Pulling the data for relevant periods or customer segments and being able to view all underlying data fields to evaluate and assess the impact can be problematic. Data extracts can rely heavily on IT and can take time to deliver. Then there’s getting the data extract right, especially where legacy systems are in place. Using the right expertise, and dedicated resources with the capabilities needed to understand the problem, specify the data requirements, and who can liaise with technical resources will be beneficial.
- Turning off the tap
Unless controls in the processes are reviewed, assessed, and action is taken more customers could be affected by the issue. It is important to review the process holistically and ensure the design of the process and the placement of the controls are optimal, ensuring efficiency and avoiding bottlenecks or unnecessary handoffs. Controls should be designed to mitigate the risk they are in place for and add value to the process.
- Customer Contact
Customer communication around the actions taken is vital. It’s possible that customers complained before a remediation was initiated so it’s important to understand how those complaints have been handled. Are any changes required to how they were previously redressed? Has the customer been treated fairly? Consideration of future complaints handling also needs to be agreed and the process managed to ensure consistency.
Our Remediation Framework
When it comes to remediation it’s important to ensure that a robust governance is implemented from start to close. It should consider:
- Triage – Investigate the size of the issue and the regulatory impacts including those on third parties and consider the financial and non-financial remediation requirements.
- Scoping and Impact – Ensure the scope is clear including different customer segments and assess if any of the segments need to be treated differently such as vulnerable customers. Determine the root cause before any action is taken.
- Approach & Resolution – Develop an approach aligned to reaching a resolution, supported by a detailed plan of activities including timescales, resources, and the communication requirements to customers and any third parties.
- Closure –Ensure all issues have been resolved, and monitor and assess the effectiveness of the controls that have been implemented.
Conclusion
The outcome of the FCA review, while not as damning as expected, did reveal that some firms need to tighten up their remediation processes ensuring their record-keeping and basic good practice elements are in place. They should waste no time getting their affairs in order.
