I am sure that in common with almost all members of the advisory community, I have spent a great deal of time over the past year or so working through the implications and expectations of the consumer duty.
In addition, due to our specialism in ethical and sustainable advice, the sustainability disclosure requirements and fund labels have also taken up rather a chunk of time, both in considering the implications and being involved (directly and indirectly) with the Financial Conduct Authority and their committees.
During one of our staff meetings to look at consumer duty, the thorny issue of the cross-cutting rule requiring that we avoid foreseeable harm arose; a member of staff found it hard to imagine that we would not avoid foreseeable harm, and asked if I could think of any examples.
Two possibilities came to mind, and both relate directly to the issue of knowing your client.
If an adviser does not investigate their client’s state of health when arranging an annuity, the outcome for the client can potentially be disadvantageous, and this aspect should have been part of the advice process. And it is of course an avoidable harm; all that is required is to pose the question.
Similarly, in relation to environmental, social and governance factors, the issue becomes clear: if an adviser does not enquire about the beliefs of their client, the opportunity for foreseeable harm to arise is significant.
A strict Catholic or evangelical Christian will hold strong views on a number of faith-related issues; a member of Just Stop Oil will have views that are likely to be different, but equally strongly held.
If they discover at some point in the future that their savings, pensions or investments are directly exposed to companies that they would clearly wish to avoid, their reaction is unlikely to be favourable.
For a number of years many people within the ethical and sustainable investment world have been wondering when the FCA will mandate advisers asking the ESG/sustainable/ethical question as part of the fact-finding process.
It appears, whether by design or not, that consumer duty has delivered exactly that expectation, and when one considers the time, effort and resources that the FCA has devoted to consumer duty and SDR, it seems unlikely that they will take failures in this regard lightly.
It will no longer be viable in relation to ESG and sustainable investment to say 'the client didn’t ask for it'.
A box-ticking exercise will also not be deemed to be sufficient; there is an expectation, even requirement if one reads the duty, to evidence that a dialogue has taken place.
It is equally important to formally record that a client does not want ESG, sustainable or values-based investment. In the absence of a record of an informed choice in this space, it is impossible to demonstrate that a firm has delivered good client outcomes.
