Alistair Kettlewell. 1978-2022

Hey everyone, Mark here. Mike will take you through an important Update this week – the new Consumer Duty will affect us all. But before I hand over to him I would like to write a few words in memory of my friend and ex-colleague Alistair Kettlewell, who has died far, far too young of cancer at the age of just 44. Many of you will know him from his time at Aviva, and then Nucleus, and then, er, Aviva again, and if you did know him you’ll understand how sad it is to be writing this.

All who knew Alistair will miss what I initially thought was one of the driest senses of humour ever, but what I came to understand was standard for Yorkshire. There are many stories I can’t tell here, but I do remember talking to him about his new, shiny bike and how light it was, and I told him about a friend of mine who had spent some outrageous amount on pedal cranks to save 15g of weight or something. He said “it’s cheaper just to not have a bag of crisps, then you don’t have to buy the new cranks.” (pause) “Or the crisps.”

AK never quite managed to get round to setting up his own business, which he was going to call The Yorkshire Tiger on the basis that a Yorkshire Tiger could totally devour a Scottish lang cat. I would have liked to see what he could do with that, but cancer had other ideas.

AK is survived by his two kids and his wife Laura, and the thoughts of all of us are with them. Please raise a glass to AK if you knew him, and if you didn’t do so anyway for life, wit and friendship. Go well AK, and let the Yorkshire Tiger always roar.

Finally, I’m claiming an extra music choice this week. Here’s James Blunt singing about triangles, and I’m not even going to try and explain why.

Thanks for bearing with me. Back to Mike now.

THE TOP CLASS WEDNESDAY UPDATE ALWAYS DELIVERS A GOOD OUTCOME

Right. No easy way to pivot back to the subject in hand, so I’m not going to even try. As expected, this morning’s announcement sees no change in scope, but a 12-week delay in implementation. Closed book products get another year to sort themselves out/sell out to someone else (delete as appropriate). July 2023 and 2024 will forthwith be known as Consumer Duty implementation months, to be celebrated accordingly.

A short delay for implementation is a sensible move. Our initial impact assessment (more of that in a bit…) concludes that whether you are an adviser, product provider or technology supplier you’ve got a fair bit to be getting on with. The same applies to the regulator, not least since until recently they were still advertising for consumer duty related vacancies. It is going to be a busy 12 months for all concerned.

However, there is a sting in the tail of the implementation timetable. Yes, it is 12 months until implementation, however as 12.11 on the Policy Statement confirms: By the end of October 2022, firms’ boards should have agreed their implementation plans and be able to evidence they have scrutinised and challenged the plans to ensure they are deliverable and robust to meet the new standards. Firms should expect to be asked to share implementation plans, board papers and minutes with supervisors and be challenged on their contents.” So, if you haven’t yet got up and running, boy do you need to. (call us!)

If you are a lang cat client or a premium analyser user you’ll shortly be receiving a concise guide to exactly what Consumer Duty is all about, including our initial impact assessment. But for now, 3 quick points that I think are worth considering.

  1. Proportionality. You are going hear this word a lot over the coming months. The FCA will look to apply a proportionality assessment to firm’s compliance with Consumer Duty, both in terms of their size (big firms = bigger expectations) but also regarding resource allocation. The resources a firm devotes to bringing in new customers should be broadly mirrored in looking after that customer once they are in, and how easy it is for them to transfer out. There is also the challenge to apply the right level of proportionality when considering and mitigating foreseeable harm – a key component of the product and services outcome, as well as understanding the responsibilities for the various elements of the value chain (advisers, platforms, fund managers etc). TL/DR…everyone is on the hook to some degree, but there is some welcome and important nuance here.
  2. Board reporting. Prioritising good customer outcomes must be a business objective, getting the same board attention that financial performance, risk and strategy would receive. There is an interesting interaction here with the Senior Managers and Certification Regime, the regulator’s current big stick for keeping individuals in line, and it makes the threat of enforcement for not meeting the Consumer Duty that much more real. The guidance includes several pages setting out how these reports need to be constructed, including a new mention of potential NED roles as a “Duty Champion”.
  3. Data is the new oil. The FCA have spoken a number of times recently about becoming more assertive and data led, and Consumer Duty represents a huge step in this direction. The creation, collection, and management of data to evidence how firms are meeting their new requirements is an area that I don’t think many adviser firms have started to even consider. Firms will be required to continuously monitor management information to ensure the required outcomes are being delivered. This is not only going to need a step change in data availability and quality, but also (to use PROD speak) a closer relationship between Manufacturers and Distributors. Again, lots of useful info in the guidance as to what the ongoing monitoring and MI needs to cover.

We’ve spent quite a bit of time looking at Consumer Duty over recent months, but I was still surprised at just how much there is to it when I started reviewing the new material yesterday. This is especially the case when you start considering it alongside existing regulation – SMCR, suitability rules etc. The FCA appear to have done a great job with the latest guidance document, with the promise of more implementation support to come. In particular there are lots of examples of what they want firms to do (and importantly, not to do). It is also worth noting their new media strategy of actually speaking to journos and circulating the material under embargo is a hugely positive step. I’m sure the analysis you are reading today (elsewhere, of course) has benefited from this.

ONE MORE THING

If that wasn’t enough regulatory excitement for one week, a quick snippet from the FCA’s annual intermediary sector data dump. Loads in here, which we might well return to at some point, but for now one thing that caught my eye. Advice sector revenues are now split 75/25% between ongoing and initial/one off fees. Overall sector revenue increased 22% year on year and almost all of this growth came from ongoing fees. 5 years ago, this split was around 60/40, but as we stand now ongoing advice services, and the recurring revenue they generate are increasingly a big feature of the sector.

DO YOUR DUTY – CLICK ON THE LINKS

Lots going on this week – thanks for reading.

Mike