Firms must tackle ‘less engaged’ clients on Consumer Duty


Firms must engage better with ‘less engaged’ and ‘gone away’ clients as the Consumer Duty deadline on closed products looms, the FCA has said.

In a speech to a KPMG conference, Sheldon Mills, FCA executive director of consumers & competition, said firms needed to ensure they communicated with clients with legacy or ‘closed products.’

The FCA’s Consumers Duty – which requires firms to treat consumers fairly at all stages of the ‘journey’ – was introduced last July for all open or new product sales.

It will be extended from 31 July for all closed products including those sold in the past by financial advisers. From 31 July all closed and open regulated products will be covered by the Duty.

He told the KPMG event yesterday that firms must also ensure ‘fair value’ in closed products even if they were sold some time ago, although the FCA would not treat previous charges and terms as unfair.

Advisers must, however, review the terms and conditions and charges applied to closed products.

He said: “We know some closed products may offer poor value. 

“In some cases, customers in legacy products might pay higher charges than they would for open products, where firms are competing for new business. In all situations, firms must assess, and be able to demonstrate, that their closed products provide fair value to customers.”

He warned that firms should be confident that they do not exploit consumers’ lack of knowledge or behavioural biases.

He said: “The key issue is that the lack of engagement either by a firm or customers may lead to problems such as: 

  • Customers paying for products they no longer need or want
  • Customers paying for products they are no longer eligible for
  • Customers not being aware of key changes to products over time – this may mean they are not able to use it as expected.” 

Firms must also make efforts to engage with clients sold closed products some time ago who may be less engaged now or even ‘gone away’ to ensure they were aware of the Consumer Duty requirements and were receiving fair value.

One challenge, he said, was providers’ ‘vested rights’ allowing them to charge exit fees on some legacy products.

He said: “Sometimes these terms enshrined in vested rights may lead to poor outcomes for consumers with closed products – for instance, if a fee is significant and undermines the benefits of the product. Where a problem is identified in a closed product, we expect firms to take appropriate action to mitigate harm.”

He said some firms might wish to give up their ‘vested rights’ of reconsider fees or charges.  

He cited closed book life-time mortgages as one product area where customers may develop characteristics of vulnerability over the life cycle of the product.  

Overall, Mr Mills said the Consumer Duty had been successful in driving change on open products so far with recent research suggesting 37% of adviser firms had changed or reviewed their fees since the Duty had arrived.

He said: “We have seen board-level leaders giving serious consideration to what the Duty means for them culturally and operationally. Separately, we have seen some firms offering fairer value too, by increasing value received by savers, reducing fees, and maximising benefits to customers.” 


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