In the case of consumer duty data, there are two significant hurdles.
First, the complexities relating to data integration, where the disintermediated product distribution chain necessitates combining data from various internal and external sources; and second, data analysis where the diverse data sets make it challenging to understand correlations, determine causation, and extract meaningful insights.
Furthermore, the data then needs to be peer benchmarked, to identify rankings, opportunities, and gaps in outcome delivery.
So, deriving actionable insights from this complex data landscape poses an enormous challenge for managers implementing consumer duty regulations.
Success metrics
Evaluating the success of consumer duty implementation is a complex and demanding process.
The key metrics for measuring success can be categorised into five main areas: price and value, product suitability, consumer understating, consumer support, and vulnerability.
One significant step towards assessing the price and value outcome is the annual publication of the assessment of value report for UK domiciled funds.
This report serves as an important tool in measuring success in this category.
At Broadridge, we have monitored total expense ratio data for five years.
Compared to European and US peers, UK mutual equity funds show greater average price compression.
While not directly correlated to regulation, increased transparency may be driving greater awareness and market competition.
To evidence the other consumer duty outcome success metrics, though not explicitly mentioned in the regulation, a closer examination of the FCA finalised guidance from July 2022 suggests the following metrics might be suitable to demonstrate and evidence outcomes:
- Price and value: performance, costs, risks, peer comparison and benchmarking.
- Product suitability: outcome goals alignment, risk alignment, suitability reviews/complaints, peer benchmarking.
- Consumer understanding: communication effectiveness, outcome alignment, customer complaints.
- Consumer support: complaint handling, satisfaction, channels, accessibility and peer benchmarking.
- Vulnerability: vulnerability levels, affordability, tailored support.
Having reached the consumer duty regulation’s first anniversary, boards and consumer duty champions will evaluate the progress made to date.
Determining the success of these metrics will require an ongoing dialogue with regulators to establish industry-wide standards for what looks good, great, and not-so-good.
Conclusion
So, what does the consumer duty scorecard look like after one year as we usher in closed products?
Are we nearing regulation-market fit?
Based on our discussions and observations, asset managers are demonstrating and embedding their consumer duty strategy roadmap and implementing plans into their overall business strategy.
Nevertheless, enormous challenges are emerging around data integration and data analysis that is necessary to derive actionable insights.
Furthermore, significant variability exists in investors’ perceived success and value metrics, making it challenging to objectively and succinctly demonstrate that outcomes are being delivered.
Despite the above-mentioned challenges, a successful consumer duty implementation is imperative.
For asset managers, building trust with the regulator and end investors is a must.
If the industry gets it right, then asset managers have an opportunity to differentiate products and services through the quality of their consumer duty outcomes, and by doing so build a competitive advantage.
