Investors support the Consumer Duty but have concerns over how to implement it and the unintended impact it could have on the advice gap, a new report from Embark Group has shown.
According to the Embark Investor Confidence Barometer, 64% of advisers think the new Duty will improve the overall experience of their clients and 71% believe that their firm has the right plan in place to deal with the impact of the new rules.
The survey also showed that the majority of advisers (60%) agree that the Duty will change the way they think about overall cost to the consumer. However, the same number of advisers also expressed worry about the impact of having to evidence that their advice is meeting the standards set out by the FCA.
Moreover, 66% of advisers said the Duty’s focus on value for money could widen the advice gap by encouraging advisers to reject clients with smaller portfolios in favour of clients with larger portfolios and more complex needs, where the benefits of their actions can be more easily evidenced.
Andrew Phipps, product marketing manager at Embark Group, said: “That the Consumer Duty will change the way many advisers think about the total cost to the consumer is a big positive on the face of it. However, the fact that advisers believe the focus on value for money could worsen the advice gap should be a serious concern for the FCA. These findings highlight the variance between the intended and unintended effects that policies can have.”
The report also explored advisers’ views on vulnerable customers. Asked if their firm had an appropriate strategy in place to identify and cater for vulnerable customers, 86% said they felt confident, with 42% describing themselves as ‘very confident’, nearly double the 22% who said the same in March.
However, Embark said there remains a gap between adviser and customer understanding of vulnerable customer status. Most advisers (68%) estimated that between 6% and 20% of their customers are vulnerable, with an average estimation of 12%.
But when consumers were asked the same, 19% of them identified as vulnerable. Younger advised consumers were more likely to self-identity as vulnerable, with 25% of those aged between 35-44 doing so, compared with 6% of those between 55 and 70 years of age.
Phipps added: “The industry may still be under-estimating the true extent of client vulnerability. The current economic, geo-political and social conditions may be acting as a trigger for heightened levels of vulnerability. Discouragingly, that view looks to be backed up by the latest UK stats that show those on long-term sickness hit a record high of 2.5m in summer 2022. Advisers may need to review their vulnerable customer strategies to give greater weight to these factors.”
