Paul Lewis: To say you’re not sleazy? Put yourself in the customers’ shoes
Forget the general principles, cross-cutting rules and other Financial Conduct Authority jargon.
By all means, peruse the 161-page PS22/9 policy statement and the 121-page non-manual FG22/5 guidelines issued at the end of July.
But all you really need to do is put yourself in your customers’ shoes and ask yourself, “Would I like to be treated like this?”
If the answer is “no”, it does not pass the consumption obligation test.
Here are some ways that no customer or even you want to be treated.
No one would choose a restricted consultancy limited to the products created by the consultancy firm or its network or a panel of firms.
My view is that only independent financial advice can meet the consumer’s obligation.
But if you think restricted councils can do it, call it restricted councils.
Just in front of. On your brochures and websites.
Or to be really honest, call it sales. Because that’s it.
The FCA says communications should “give customers the right information, at the right time, to understand the product or service in question and make effective decisions.”
They need to know.
Raise your hand if you charge your clients a percentage of the money you invest in them, what you normally like to call their wealth.
If your hand is up, it means the other is in his pocket and taking his money.
Even the government does not levy a wealth tax on the living. And if he had a choice, no one would agree to pay for one.
So charge fees in pounds like any other profession.
If a customer prefers 1% per annum to £1,450, it’s either because 1% seems much smaller, or because they can’t understand that if they have £250,000 after seven months, it’s the same thing.
Where are your fees on your website? Are they on the first screen or buried in “About Us”?
Or do you think putting them on the website would just confuse customers? Or maybe you shop London’s Bond Street so often that you’ve never seen products with prices?
To complete the consumption duty, put them on page 1.
Every serious fund management study has shown that over the long term, passive funds give investors better returns than active ones, in good times and bad.
So how can you justify even for a nanosecond, let alone 20 years, selling an active fund where the fees are higher and the performance worse?
Consumer Duty would require you to explain all of this to them. And then who would buy them? So stop selling them now.
Most people would like to have cash and most advisors would recommend it.
And remember that if you quote cash returns in real terms after inflation, you must also deflate investment returns to comply with your consumer duty.
Remember that cash funds are not cash. A cash fund is more like Liza’s bucket than a savings account.
Silver can now easily earn more than 3% per year without risk.
Cash funds typically lose money after fees. If you have to sell them, at least explain it.
It is still ridiculously difficult to know what the total fees taken from an investment are.
Just tell the truth, the whole truth and nothing but the truth.
Like this: If you invest £100,000 as we recommend, you will pay a total of xxx each year for all the different costs and charges, some of which are due to us and some to other people.
Your investment will have to produce a return of x% per year just to pay these fees.
After that, the money is yours. Unless you want to remove it when we still charge y%.
If the shoe fits
Just six of my hobby horses and their uncomfortable shoes to stand on.
If you clearly tell your customers the whole truth, you won’t go far wrong with your consumer obligation.
Far better than sifting through those 282 pages looking for loopholes to keep you going as before.
Paul Lewis is a financial journalist and host of Money Box on Radio 4