Less than 60 days until Consumer Duty: A wealth management opportunity beyond compliance

With less than 60 days to go until the FCA’s Consumer Duty comes into force (on 31 July 2023), this new act will present opportunities for wealth managers to enhance their client relationships.

Consumer Duty will act as a democratizing force in finance, as it will drive greater personalization of investment advice for wealth management clients, with products, services and communications that are specifically tailored to meet their needs. 

In practice, Consumer Duty centres on clear and timely communication, client support and personalized service based on client profiles as well as the ability to demonstrate fair value. It requires wealth managers to identify where, and why, a client may not be receiving a good, or desired service, and proactively address any risks or issues identified during this process.

Data-driven advice

Consumer Duty requires wealth managers to have increased oversight on client decisions and advisory activities. This entails a greater understanding of client preferences and expectations – and how they align with the advice and products offered by advisers. To comply with this aspect of Consumer Duty, wealth managers need a robust onboarding process to create an in-depth client profile as well as reliable data on investment products to ensure that they are optimally geared towards achieving clients’ objectives. Importantly, this data must be readily available for the purpose of demonstrating compliance with the regulation, such as compiling regular performance reports. 

More informed decision-making through visualization

Wealth managers need to rethink how they present investment recommendations and portfolio composition. When constructing or rebalancing a portfolio, for example, wealth managers can leverage intuitive visualization tools to help explain the relative performance of investments under different circumstances over time and how they align with the investor’s preferences, risk tolerance and desired investment outcomes. In this way, investors can better understand the rationale behind their adviser’s recommendations, which ensures more informed decision-making and builds trust.

Customized client communication

While Consumer Duty does not set out a preferred method of communication, wealth managers should identify and establish the channels that are most convenient for their client base and which foster clearer communication. This means, for example, that where clients wish to use social messaging services, such as WhatsApp, to discuss their finances with their adviser, it will be incumbent on those financial organizations to determine whether and how they can facilitate this in an auditable, secure and compliant environment.

An opportunity to improve client engagement

The FCA's Consumer Duty will usher in a major shift in the financial services sector, as requirements on oversight and transparency continue to become more clearly defined. There will be little room for passive client relations from next July, and wealth managers should consider how they can best demonstrate the value of the service they provide.

Beyond compliance, the FCA’s Consumer Duty is an opportunity for financial institutions to improve client engagement and loyalty across all wealth segments through enhanced communication, more tailored investment advice and targeted support.