The industry had lobbied substantially for an extension, and to be fair, this has been pushed until July next year however, there was a stick to accompany this particular carrot in the form of the Consumer Duty Implementation Plan which every regulated firm is required to have by the end of October. This was not a part of the original consultation.
Indeed, the FCA Policy Statement PS 22/9 says “By the end of October 2022, firm’s board’s (or equivalent management body) should agree their implementation plans and be able to evidence they have scrutinised and challenged the plans to ensure they are deliverable and robust to meet the new standards.”
That leaves little time for advisers to effectively get their plans in place and outline how they intend to implement these rules. Particularly in terms of the culture change the FCA expects to see which focuses more on the delivery of positive consumer outcomes.
However, in terms of protection, from our perspective, there is much to be positive about, especially around the focus on outcomes, ensuring consumers have the right products, and that they are provided with the protection they need. In my eyes, this is a clear opportunity to grow the market and ultimately ensure that more individuals are protected.
In fact, you might call the Consumer Duty something of a Protection Charter, because it appears to rule out any possibility of advisers putting their protection conversations on the back burner until a later date. All firms, including those who are battling with the pressure and complexity of the current mortgage market, must provide a solution to address their clients’ protection needs.
The very basic question which needs to be addressed here is what would the client do if they were, for any reason, unable to keep up payments on their mortgage? That is a potential outcome of providing advice and a recommendation on a mortgage, and therefore (at the very least) the adviser has to address the protection policies the client has in place, or rather doesn’t have, to address that potential outcome.
We know that last year, the average age of those signing income protection policies with Legal & General was 40 years old. When we compare this to the average age of a first-time buyer in London which is around 35 years old, it was clear that there is no longer a case to be made for protection to be addressed at a later stage.
This is not to say that the adviser has to provide the protection advice themselves – although it is clearly in both parties’ interest for them to do this – but they have to ask the question, address the risks, outline the benefits of certain protection policies, and then present the client with the solutions available.
Again, this could be via their own advice or perhaps through an introduction to a specialist protection adviser.
What the Consumer Duty appears to say – at least from my reading – is that advisers cannot ignore protection or gloss over it, or somehow suggest that this isn’t relevant to clients right now. If the need for protection is realised in the future and there is nothing there for the client to claim upon, they might well argue that this was something of a dereliction of duty on the adviser’s side, as they didn’t put in place everything required to meet this potential outcome.
We’ve argued for many years that protection should go hand in hand with mortgage advice, but the penetration rates for many advisory firms do not bear this out. Of course, a client can refuse to take up a protection policy – and the firm should always document this when it happens – however they can’t refuse what hasn’t been offered to them. Consumer Duty appears to follow a line where advisers/firms must present protection to them rather than ignore it.
Furthermore, we have already seen a number of success stories with Paradigm firms who have previously not written protection business, recruiting individuals into their firm to fulfill ‘Protection specialist’ roles. We have supported these firms through this process, including the training and compliance elements, which has allowed these firms to embed a process for handling protection enquiries in a way they could not previously due to workloads.
The final point to address here for firms who have not previously embraced protection is that this is a sector with few, if any, barriers. Likewise, there are plenty of opportunities that exist, which means that you can potentially utilise this change under the Consumer Duty to add a valuable income stream to your bottom line.
