Of the fair value assessments we have seen, many did not include proper benchmarking against competitors, or a thorough analysis of profitability at a customer segment level. Many were not honest about the level of the financial capability and competence of their customers.
Having seen the consequences of getting this wrong, a number of firms have asked us to come and give them a critique of their first effort – and, if I am honest, I have been surprised by some of the companies that we have had the chance to work with.
Fairer Finance is a bit of an odd beast. While we work with companies who want our help to deliver good customer outcomes, we also publish ratings, and we campaign for change where we think regulation or legislation needs updating.
We pride ourselves in being an honest, critical friend to our clients – even when the message is hard to deliver and hard for them to receive. As a result, we have not always been everyone’s cup of tea.
In a consumer duty world, however, firms seem to be much more open to real challenge. Boards need to prove they are working to deliver good customer outcomes, and ensure they are working to prevent foreseeable harm.
If you are doing this properly it will almost certainly be a little uncomfortable.
Cross-subsidies that may be endemic in your market could be hard to defend.
Supply chain inefficiencies and high commissions may be unjustifiable.
But firms can see that the tide is rising, and even if consumer duty has not eliminated these elements in their market yet, they need to plan ahead to consider what day two, three and beyond of this new world could look like.
It is still early days. By the end of this month the duty will extend to closed-book products, and over the months ahead we should start to see the first published Ombudsman decisions where consumer duty has played a key role.
I would guess we are still a long way out from the first published enforcement case that is built on consumer duty. But I feel optimistic about the direction of travel and the way the industry is changing.
When I first started work, the financial pages were full of stories about mis-selling. Pensions, mortgage endowments, precipice bonds, PPI, split-cap investment trusts, ID fraud insurance – the list goes on.
It is hard to imagine any of those scandals beginning in world where consumer duty existed.
James Daley is managing director of Fairer Finance
