The Consumer Duty requires firms to put clients at the heart of every decision. The Duty puts a spotlight on a firm’s:
- Culture – the shared beliefs and values of a firm
- Governance – how a firm manages its conduct and information
- Accountability – being clear what each person is responsible for
The Consumer Duty is a set of principles, rather than rules. The FCA expects everyone within a firm to act in the spirit of the principles; it reaches much further than just compliance.
This is significant, because most advisers haven’t had to evidence Culture, Governance or Accountability in their firms before. In this article, we’ll take a look at some practical tips to establish and embed the right environment to rise to the Consumer Duty. What’s more, if you get these areas right, your business will grow as a result.
Culture: The Heart of a Thriving Business
A positive culture creates an engaged workforce, motivated to deliver good outcomes for clients. Poor culture affects morale and leads to bad customer outcomes.
Company culture is often expressed as a set of corporate values – beliefs or behaviours for which you want to be known, and which encourage staff to ‘do the right thing’ – but many companies set out values which then have little impact.
Successful cultures are owned by everyone in the organisation, and then embedded through actions, rather than words.
To establish a good culture:
- Have a clear purpose – set out why your firm exists.
- Review, or create a set of values for your firm to live by. Using an external consultant can help if you’re not sure where to start.
- Surveying your employees in the early stages of value setting can help ensure the values you end up with are authentic and motivating.
- Find ways to reinforce your values naturally:
- Reflect your values in your hiring decisions.
- Conduct performance reviews against them.
- Celebrate success with internal awards, mentions and staff rewards.
- Run an employee survey to measure how you’re doing against your desired culture.
By building a culture around positive client outcomes, adhering to the principles of Consumer Duty should become second nature.
Governance: Driving Growth through Strong Controls
Good governance leads to better risk management and improved decision making. It should be based on the same values as culture and create accountability through transparency.
Well defined systems and processes also lead to increased productivity and therefore profitability. Firms will have more data because of Consumer Duty so managing data well is essential.
Your governance framework should include:
- Roles and responsibilities
- Accountability for decision making
- How you manage risk
- How you will manage and use your data
- How you communicate with stakeholders
- Your firms’ values and culture
A good governance framework builds trust amongst colleagues, stakeholders and clients. It also helps to quickly find the root cause of issues, allowing them to be quickly resolved. If you’ve not done it recently, mapping your processes is a great idea to ensure they’re clear and efficient.
Having your governance framework in a single document is useful evidence of meeting Consumer Duty, should the FCA require it.
Accountability: Driving Performance through Measurement and Feedback
Accountability makes it clear who can make decisions and who is held responsible for each area of the firm. Many firms won’t have documented accountability before, but should under Consumer Duty.
What’s more, where regulation is normally about avoiding bad practice, Consumer Duty marks a shift in which the best firms will be those which call out good practice.
To set up for success, firms should:
- Include an ‘accountability map’ as part of their governance framework.
This documents the key functions of the firm and who is responsible for each area. Make sure to include all staff and avoid overlapping responsibilities, as this can cause confusion. - Review their Key Performance Indicators (KPI’s).
The measures you use will determine your staff’s actions. Rewards should be linked to achieving good client outcomes rather than sales. Client feedback should feature prominently in a firm’s KPIs.
Creating an Environment for Future Success
It’s a critical time for financial advice firms. To meet the new regulatory requirements, a firm’s culture, governance, and accountability must all work well.
By creating a positive culture, having the right systems and controls in place to support growth, and fostering accountability through measurement and feedback, firms will fulfil their Consumer Duty requirements.
What’s more, they’ll be better positioned to increase profitability and drive future success.
4 things firms should do right now:
- Create a set of values for your firm to live by. This will help foster a culture of doing the right thing, even when no-one is watching
- Create a governance framework, which includes an accountability map
- Book a meeting to review your KPI’s – they should be in line with your values and promote the right behaviours
- Create a training plan for staff on your firm’s purpose, values, culture and what’s expected of them
