HOW MUCH HAS CONSUMER DUTY CHANGED THE GAME?

Headlines:

1. On the 4 pillars of Consumer Duty and the expectations the FCA has for firms it was unanimously agreed the impact of Duty, on balance, was positive for the industry and the customer but concerns were expressed about potential unintended consequences including extra costs
2. What is needed is greater collaboration between brokers, lenders and other parties and, as always, greater transparency and guidance from the FCA

Discussion points:

Identifying and Supporting Vulnerable Customers
The discussion started on pillar 1 of the duty, ensuring products and services are designed and promoted to meet the needs of target customers. The core to this was an exploration of the complexities of identifying and supporting vulnerable customers. Participants share their experiences and approaches, including client segmentation, tailored communication strategies and collaboration with lenders and other parties. There was a debate around the definition of vulnerability, how to make it wide enough but not too wide, and whether certain customer groups, such as first-time buyers, should be automatically classified as vulnerable as they need more hand-holding.

Pricing and Fee Transparency
A significant portion of the discussion revolved around pricing and fee transparency to meet the needs of the 2^nd pillar ‘price and value’. Differing perspectives were shared on the appropriate level of fees and whether lenders should impose caps or guidelines. Some argue for flexibility in pricing to reflect the value of their services, while others believe in capping fees to maintain fair value. The debate covered segmentation, cross-selling, and the role of technology in improving transparency. This aspect of transparency has ‘changed the game’ to some extent.

Consumer Understanding and Support
There was an in-depth discussion of the challenges and potential solutions related to improving consumer understanding to meet the needs of the 3^rd and 4^th pillars. Topics include the clarity and accessibility of communication materials, the use of technology and data to enhance understanding, and the role of different stakeholders in the mortgage value chain in particular this is where lenders must play their part. There was a recognition that financial literacy levels vary among consumers and firms need to adapt their approaches accordingly. Know your customer was the common mantra and many prided themselves on doing this, proving that, to some extent, consumer duty has not ‘changed the game’ here but encouraged and rewarded good practice.

Key takeaways:

1. Improve collaboration between mortgage brokers, lenders, and other stakeholders to align on best practices and streamline processes related to Consumer Duty implementation
2. Explore the use of technology and data to enhance consumer understanding, support, and identification of vulnerable customers
3. Seek clearer guidance from the regulator on specific aspects of Consumer Duty, such as defining vulnerability and establishing fair value criteria
4. Implement robust client segmentation processes, especially to identify and support vulnerable customers effectively
5. Develop tailored communication strategies and materials to improve consumer understanding, considering varying levels of financial literacy
6. Establish transparent pricing models and fee structures that demonstrate fair value while allowing for flexibility based on the complexity of services provided
7. Continuously review and update processes, documentation, and training to ensure ongoing compliance with Consumer Duty requirements