It's safe to say 'Consumer Duty' will likely be the buzzword of 2022 (in our circles at least).

You may have tackled the FCA's latest consultation over the past month or so (which may or may not be worse than dry January).

That said, I think the expectations the regulator sets out in the paper are worth paying attention to.

The latest Consumer Duty consultation, published in December, sets out to define the standards of care that firms should adopt.

This can’t be a bad thing - in fact most firms will probably think they're already doing this.

Yet we all know that lack of trust among consumers and transparency and poor conduct within the sector are issues we continue to pay for through rising regulatory costs, whether that's Financial Services Compensation Scheme levies or the escalating cost of professional indemnity insurance.

It's clearly frustrating for firms who set out to do the right thing.

So how will the Consumer Duty look to change all this?

The evolution of TCF

In the latest consultation, the FCA emphasises responsibility throughout.

It doesn’t dismiss the fact the client has a part to play in making their own financial decisions. But it also stresses the need to acknowledge and take responsibility for the position of power providers and planners have over clients' decisions.

The first thing I noticed in the paper is it feels like the concept of treating customers fairly (TCF) is looking less woolly. The FCA spelt this out quite well:

"When consumers deal with financial services firms, there is generally an imbalance in bargaining position, knowledge and expertise.

"While firms and consumers both have a role to play if consumers are to achieve good outcomes, consumers can only reasonably be expected to take responsibility for their choices and decisions if firms act openly and with honesty, avoid causing customers foreseeable harm and take proactive steps to empower consumers to make good choices by establishing an environment in which consumers can make decisions in their own interest and realise their financial objectives.”

The proposed cross-cutting rules look to strengthen the TCF principle. These are to:

• act in good faith towards retail customers

• avoid causing foreseeable harm to retail customers, and

• enable and support retail customers to pursue their financial objectives.

So essentially, be trustworthy and support the client in making good decisions based on what's important to them.

The quality of advice

It's an interesting point to highlight and one I think many people in the industry misunderstand.

Advisers are closer to clients than anyone else in the process and from my experience, once a client engages with an adviser it is normally on a strong basis of trust.

I do believe that most clients will go with what an adviser recommends without challenging the advice most of the time.

You can understand this point of view - if someone is seeking advice from a professional, it's on the basis the professional knows more than them and will use that knowledge to help them.

Clients don’t know enough to check if the advice is sound, so they rely on the adviser to provide the information they need to understand.

Yet while clients will usually trust an adviser's integrity, we know the quality of advice can be inconsistent. So placing the responsibility on the adviser to be proactive and help the client understand the advice well enough to make good decisions is completely reasonable.

But what is delivered as 'advice' varies hugely and as a profession we continue to struggle to shake off the product sales reputation.

We're not necessarily always that good at taking ourselves out of the advice we are delivering, and our objectivity can easily be compromised by our views.

Ultimately, clients are led by the questions we ask them. The information we gather to understand their circumstances, views, experience and values will have an impact on how informed the client is about their decisions.

These skills are often described as 'soft skills' which is hugely dismissive of how important they are to the delivery of good advice.

The professional shift towards incorporating financial planning into advice propositions will be key here.

From the client's point of view, the value and peace of mind clients get from the clarity of direction beats any discussion on performance and asset allocation.

You'll know this yourself - for clients, the important questions are:

• Can I afford this? 

• How do I save tax? And crucially,

• Have I got enough?

Helping the client answer these and empowering them to make good decisions are more critical than talking about switching their ISA or pension.

Client communication and the question of value

How we as a sector communicate with clients also came under fire in the paper, and I for one think it's about time.

As an industry you don’t have to look much further than most fund factsheets, key features documents and annual statements to see we are pretty poor at putting ourselves in the client’s shoes. This needs to change.

Generally speaking, our communication is awful and confusing, which is why this forms such a big part of the consultation.

We bombard people with too much information, then try to lay the responsibility squarely at their door on the basis we've given them everything they need to make a good decision.

The question is: do they understand it?

For most clients, the answer is absolutely not. There's enough supporting research to show most people don't read their pension statements, and find financial services jargon off-putting. And that's before we get to 60-page suitability reports!

The other interesting point is about value. Value for money is not about arguing who is the cheapest and who is overcharging.

It's about defining the service you offer for what you charge, and ensuring the quality and delivery matches what you promised. Basically, is the service worth it?

Arguably, this is an area advisers can often fall down on, and one where things are going to get interesting in future.

The levels of service and professional standards offered by advice firms vary hugely, which makes it hard for clients to know if they're getting a good deal.

Research suggests most advised clients are satisfied with the service. But it's hard for clients to judge this, especially seeing as it's something most people don’t compare.

There is also a significant number of consumers who don’t trust advisers, and I think the lack of transparency and options around paying for advice has a part to play in this.

Clients are showing more of an awareness of fees, and it would be great to see more competition in the services and propositions available.

It still feels that most advice businesses offer the same and charge the same. Rarely do we see businesses where the client can just get one-off advice.

While at the moment there doesn’t seem to be a massive need for change, many businesses may find themselves asleep at the wheel.

We desperately need innovation, rather than relaxing into thinking we don’t need to worry about disruption. I'm not sure the consultation will be the driver of this, but it is encouraging debate which in itself is a step in the right direction.

Consumer Duty and delivering a service

Overall there's a lot packed into this consultation, and I thought the clarity of the examples in the appendices were refreshingly less vague than usual.

If you haven't already, I think this is one paper that's worth taking the time and care to read. At the very least, it would be hard for anyone to argue against the intention behind it.

Ultimately we are a service industry, and looking after clients should be central to that. What will be interesting to see next is what businesses do about it.

Helena Wardle is a partner and chartered financial planner at Smith and Wardle Financial Planning

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The consultation closes on 15 February 2022.

Helena is one of over 1,200 advice professionals who make up the lang cat's insight panel. By sharing their knowledge and perspective, we get a little window into your world - and hopefully can influence things in the wider financial services universe too. You too can add your voice into the mix - find out more about the panel and sign up here.

We'll also be chatting about client outcomes and who really benefits from how the financial services industry is currently working at #langcatlive on 10 February. Join us in person at BAFTA in London, or live stream online - find out more and get the last of the tickets here.