The thing about Consumer Duty is that, while some may wish the opposite was true, it is not a cliff edge project.

While the deadline for getting ready for the new rules has come and gone, it’s not a case of moving onto the next thing on the to-do list. This is embedded for life now into advice and planning firms.

That’s not as threatening as it might sound.

We’ve seen many good firms where they’ve gone beyond simply getting ready for Consumer Duty, evidencing their processes and the value they deliver. For some firms, they’re implementing new processes and services for clients as a result  – Consumer Duty is actually changing the way they work.

Yet one aspect that we think requires some careful thinking is the requirement to avoid foreseeable harms. It’s up to firms to interpret what this means for them, which in a way is nice. But when something is so subjective then from an adviser’s perspective, it can also be quite dangerous.

Applying the rules

I know you know this, but let’s start with what the FCA has said about foreseeable harms:

Where it gets dangerous is an advice firm’s interpretation of the above might be different to the FCA's interpretation of it. Worse, still, in about 18 months’ time, it might be different to what the Financial Ombudsman Service will be starting to say around foreseeable harms.

So how to define a foreseeable harm?

For us, it’s that moment where you look back and think: 'We've dropped the ball here.' It’s the realisation that something you should’ve done, or something you shouldn’t have done, has led to poor client outcomes.

In the context of research and due diligence, a lot of the thinking around avoiding foreseeable harms will form part of a good, robust process.

To put it another way, if you haven’t gone through that process, how exactly are you identifying foreseeable harms on, say, the platforms that you're selecting? How do you avoid foreseeable harms when you’re recommending investments? The reality is that if something should have been identified and wasn’t, then that’s an instant rule breach right there.

Things to think about

This is by no means an exhaustive list (back to that subjective point again), but here are some example scenarios we’ve come up with on foreseeable harms that can and should be avoided:

- Functionality e.g. “We thought our platform did X, and it doesn’t. Or it does X, but in a crap way.”

- Unaccounted for costs e.g. “We didn’t realise there were costs associated with going into drawdown on this platform.”

- A client with CGT needs somehow ends up a on a platform without the appropriate CGT management tools.

- You need to do a last minute Bed and ISA for a client, only to find the platform has a manual process, resulting in the client missing the tax year end deadline.

The life cycle of the client

What Consumer Duty has made more explicit is the requirement to consider clients’ needs throughout the expected life cycle of the product or the service they’re buying.

Advisers will clearly need to think about this from an advice point of view, but also from the recommended investment solution and platform point of view. This is something the FCA has been looking at in parallel with Consumer Duty as part of the regulator’s ongoing thematic review of retirement income advice.

This is worth thinking about in the context of avoiding foreseeable harms.

For example, a client might not need a platform that offers flexi-access drawdown now. They might not need a wider investment range now, or a DFM that offers sustainable investing options. But those needs might come into play further down the line.

Applying that life cycle of the client approach means not just factoring in what the client needs now, but what they might need in future. That’s the kind of potential foreseeable harm firms will need to guard against.

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