Trusted Advisers - Consumer Duty

The background.

Implementing the FCA's consumer duty principles holds the trusted adviser industry accountable for delivering good consumer outcomes. This includes estate planning as part of wealth preservation, which should be conducted at annual reviews or when relevant to clients' needs. This is the most significant change for advisers since the retail distribution review 2015. This article simplifies the focus on trusted advice, consumer duty, and estate planning for brevity.

The Society of Will Writers  (SWW) is the leading self-regulatory body for Will Writers & Estate Planners, with over 1,700 members. Section 2.5 of its general code of conduct states, "Where a matter is beyond a Member’s competence, the Member must advise the client to seek alternative legal or other advice." Within the last three weeks, I have referred clients to three separate specialist lawyers, an accountant, and a chartered tax adviser. Insurance, mortgage, and care specialists also assist my clients where need dictates. I did not ask for or receive a commission. The ability to earn the title "Trusted Adviser" is sufficient.

Good outcomes for consumers

Advisers are adjusting to these new requirements. In financial planning terms, this means focusing on future outcomes. Although it may sound blunt, the "death and taxes" saying highlights an outcome that applies to 100% of clients. Therefore, it should be considered holistically and focused on future outcomes while being affordable 100% of the time.

Act in Good faith

We recognise that providing sound advice requires a basis in actual (stochastic modelling) rather than hypothetical scenarios alone.

Avoid foreseeable harm

It's crucial to be aware of the risks and take action to address them. Surprisingly, around 60% of adults in the UK do not have a will, even though everyone eventually passes away. Additionally, approximately 99% of adults do not have a Lasting Power of Attorney (LPA), even though around one-third of those over 65 will develop dementia. Every 90 seconds, someone in the UK is admitted to a hospital with an acquired brain injury. These statistics highlight the importance of having a Will and LPAs. It is recommended that every adult in the UK should have both. Source: Office of the Public Guardian

Products and services.

Planning often involves recommending a product, but the most important aspect is the service being provided. If you offer an ongoing service, it's important to regularly review client objectives and assess the potential for future harm. Some financial advisers find it challenging to develop new and interesting reasons to reach out to clients and provide them with fresh, relevant information. One way to do this is by offering a link to a trusted estate planner. The same principles and rules must be consistently applied within the planning service. Recommending a do-it-yourself or the cheapest/most expensive alternative does not reduce the responsibility for ensuring that the entire distribution chain takes measures to avoid harm. Using qualified, insured, and compliant members of the SWW fulfils due diligence and responsibility for this part of the chain.

Price & Value

If you are not primarily focused on estate planning, referring clients to a specialist is better than trying to advise them yourself. Even if you are competent in estate planning, it may distract you from your main work and make you less efficient. This could also lead to not providing the best value for your clients. It's essential to prioritise meeting the client's goals and providing reassurance when needed, as this is just as valuable as any financial benefit. Remember that delivering either too cheap or overpriced advice for the client's needs is still wrong.

Consumer support

Covering the client’s future objectives, imparting a good understanding of the financial plan's implications, and allowing for future risks will all help reduce the potential for client complaints. The advice firm will need to have the right processes to deal with complaints, but having a thorough planning process that covers all the potential risks should moderate the prevalence of complaints.

Consumer understanding

A rule of thumb here is the client needs to be able to take what you tell them and explain what is going on to someone else. A simple question to a client could be, "What are your plans in the potential event of loss of physical or mental capacity or eventual exit?" Fern Wills & LPAs, Private Client Consultant Chris has over two decades of experience training and consulting in financial services and can, therefore, explain challenging subjects in an easy-to-digest manner.

CPD (Continuing Professional Development)

Providing any learning you undertake is industry-relevant; even if provided by external organisations, it may qualify as an unstructured CPD. I discuss options and cross-cutting with referral partners and can record the outcomes and structure of the meeting to evidence clear benefits to clients and a deeper understanding of how to match their needs.

Preservation of Wealth

Inheritance tax receipts are over £6bn per year and rising. This means estate planning continues to be a priority for many clients, especially as each budget compounds the issue, again highlighting the importance of prudent planning. In 2021, a survey of advisers found for up to 80% of advised clients, IHT planning was a primary consideration.

Case Studies - (extracts from other articles)

Case: matching service and value.

Previously, an FS company provided its clients with free Wills. This was a gesture of thanks to the client and fulfilling consumer duty when a genuine need was identified. The referrer entirely covered the cost; hence, there was no fee to the client. They achieved this by engaging a national company focusing on high volume and online applications. However, this "cheap service" did not align with the FS company's high-quality, value-driven service, potentially tarnishing the referrer's reputation and causing future issues. They considered ending the offer or partnering with a national solicitor. Still, the latter's higher pricing did not reflect the values of the referrer, nor did it ensure personalised service.

Now, they direct clients to us. Our service level and pricing were already comparable. Still, we agreed on preferential service levels, a modest discount for the client, and a matching donation to local charities. As a result, the primary beneficiaries were the clients and the community. At the same time, Fern Wills and the referrer reinforced their earned status as trusted advisors, complied with consumer duty and increased referral business.

Case: Is good enough good enough?

I asked an IFA what he thought of the level of service he received from the Will writer he referred to, not just for the client but also for the IFA themselves. He replied, "They are OK." I asked if the IFAs' clients thought he was just OK. Would that be good enough? He replied, "No, I want them to be delighted." My reply was then obvious: "So why is just OK good enough for a referral partner?"

Case: feedback and appreciation

A retired professional services provider used to send a few referrals per month to an estate planner. However, the referrer expressed dissatisfaction with receiving zero feedback, not even an occasional thank you. They now refer clients to Fern Wills & LPAs, ensuring personal service, privacy policy compliance, and periodic tokens of appreciation that are welcome. However, they do not compromise the integrity of the referrer.

It's no surprise he now refers to Fern Wills.

Case: First Contact

During a fact-finding exercise, I asked clients why they were updating their Wills and adding Powers Of Attorney. They told me they had been advised to by their IFA during a pension review. I added an instruction to their Property & Finance LPA to allow Discretionary Fund Management (DFM). They permitted me to contact their IFA to inform them of the solutions put in place to complement what the IFA had started. 

The IFA was delighted with the proactive approach to inform them and the holistic solution that I found to complement the IFA solutions. 

Case: Protecting the customer.

During a fact-finding interview, I uncovered a need for mortgage protection; otherwise, the house could not be gifted in the Will as they intended. With clients permission, I referred them to a contact of mine who could arrange Mortgage Repayment Protection/Insurance. 

This helped the client with their estate planning and filled a gap in their cover. They said they had heard about the insurance, but now they heard the same thing from Fern Wills (with no direct vested interest); they said they would arrange it.