Unpacking Consumer Duty: What do 'good client outcomes' look like?
At the heart of the new Consumer Duty regulations is a new consumer principle requiring firms to deliver ‘good’ client outcomes. Vitality Group Compliance Director, Steve Allibone weighs up what this might mean for advisers.
The soon-to-be-introduced ‘good client outcomes’ principle is viewed by the Financial Conduct Authority (FCA) as a “paradigm shift” in the way firms are expected to treat customers.
In aiming to set a much higher standard of customer protection, it is pitched as a step-change in treating customers fairly (TCF), with firms needing to demonstrate evidence that they are putting their clients’ needs first.
“The risk with a more transactional approach to ‘advice’ needs may get missed, potentially leading to future detriment.”
What is meant by 'good' outcomes?
It’s important to make the distinction that there may be scenarios where an outcome is fair, but not good.
This doesn’t mean that all outcomes need to be favourable for the client. Instead, they should be the right outcome. Clients should be treated in a manner that is in keeping with the standards expected by the regulator. For example, a client’s claim could correctly be rejected because it is invalid, but it wouldn’t be a good outcome to delay communicating this to the client because of poor processes.
It’s also important to note that the definition doesn’t hinge on a single good outcome, such as paying a claim. Instead, the principle applies to all aspects of the client’s interaction with the advice, products and services they receive, taking into account the whole client journey and how they are treated at every stage.
It starts with advice
It’s also crucial that individual client needs are properly met. Holistic advice that is tailored to the needs of the individual is more likely to achieve ‘good’ client outcomes.
The risk with a more transactional approach to advice - where the client dictates what they want and is simply sold a product - is that certain needs may get missed, potentially leading to future detriment.
Furthermore, if the client sees the process as little more than a sales transaction, they may not see the true value of their cover, or fully understand all its features and benefits. With this comes greater risk they’ll lapse or cancel it, even if there is a need still present.
Instead, ‘good client outcomes’ are more likely to be achieved by spending time to properly understand a client’s needs, which can then be addressed with suitable recommendations that are thoroughly and properly explained.
Of course, not every client will necessarily act on those recommendations, but if it’s clearly evidenced that the advice was given then firms will not fall foul of Consumer Duty expectations.
Protection in the spotlight
All this places a particular emphasis on the importance of protection insurance.
Given the lack of financial resilience of many UK individuals and households, made worse by the ongoing cost-of-living crisis, any financial or mortgage planning advice could easily be jeopardised without adequate protection cover in place.
This is where we can draw a clear distinction between simply treating customers fairly and good outcomes. A client buying a house for example may be perfectly happy with a fair and reasonable mortgage offer they secure. However, if that client was incapable of repaying the mortgage in the event of ill-health and no protection had been discussed or put in place; that’s a poor outcome.
This is not to say that advisers need to become specialised in delivering advice across all financial products. What it does mean is that appropriate processes, such as signposting or referral services, should be put in place to ensure clients are getting access to the right advice when needed.
Long-term client relationships
Having the right process in place and maintaining an ongoing client relationship can also support better outcomes - from ensuring cover remains suited to a client’s changing needs to simply reminding them they have cover in place should they need it.
Whilst advisers should ensure they have the right client contact approach in place, including annual reminders and reviews.
Providers also play a role here. The detailed annual statement letters we send out at Vitality, to both client and intermediary can serve to remind clients of the cover they have in place and help prompt a review if it is needed. We also go a step further and where necessary highlight the ongoing value they’re receiving through the partners and rewards they have access to.
Our highly engaging protection and health insurance propositions – underpinned by the Vitality Programme and accessed through Member Zone – generate regular touchpoints and daily interactions that help maintain long-term relationships.
Another benefit of this is that it also serves advisers through lower lapse rates – up to 39% less for highly engaged members1 - achieving better outcomes for all.
Relevant, flexible products drive better outcomes
Of course, it doesn’t matter how good the advice process is if the products themselves are not suited to client needs.
Offering greater flexibility to meet changing client needs is also tantamount to delivering ‘good client outcomes’. For example, this might involve expanding the ways in which a client’s Income Protection plan can be changed without further underwriting, if they change jobs.
Wider trends should also shape product design. As the health landscape evolves, technology advances and lifestyle change, this will have a significant impact on insurance.
Take for example the growing prevalence of people seeking advice and treatment for mental health conditions. Given the growing demand for support in the UK, we took the decision to remove all automatic mental health exclusions from our individual Private Medical Insurance and deliver better outcomes to those clients with a history of mental health.
Similarly, as people are living longer, but often in poor health and with conditions such as dementia on the rise, we recently announced - at Life Launch 2023 - the automatic inclusion of our unique Dementia and FrailCare Cover on all Serious Illness Cover plans. This will ensure those clients will have the option to continue cover beyond the normal life of their plan should there be a need – enabling advisers to support clients at every stage – from prevention through supporting healthier lifestyles and into later life, as well as at death.
What's ultimately clear is that products need to move with the times to stand a more realistic chance of delivering ‘good client outcomes’ - to help advisers ‘avoid foreseeable harm’ - and therefore meet Consumer Duty requirements over the long-term.
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Where to next?
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Unpacking Consumer Duty: What is fair value?
As we fast approach the implementation of Consumer Duty on 31 July, Steve Allibone, Group Compliance Director for Vitality, explores one of its core underlying outcomes – ‘price and value’ – and considers what the industry can do to ensure it is being delivered in the right way.
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