The Financial Conduct Authority (FCA) recently implemented the new Consumer Duty policy to ensure that customers receive better outcomes from their financial adviser.
The high cost of living has resulted in a growing trend of people using the buy now, pay later (BNPL) services, carrying the risk of their debt snowballing.
The rise of private equity continues to drive the population to seek expert financial advice.
Some investors use the environmental, social, and governance (ESG) criteria to determine where to invest and measure the associated risks.
The realm of financial advice is not static. The world is changing all the time, forcing financial advisers to stay up to date with current affairs and keep abreast of any imminent changes in regulations, trends, markets, and products to provide optimal service and information to their clients.
After the changes 2023 brought, this article focuses on the four primary themes likely to impact financial advisers in 2024.
The FCA launched the Consumer Duty policy on 31 July 2023, which is a set of regulations designed to ensure a higher standard for consumer protection in financial service firms.
Under the Consumer Duty, the financial adviser or firm empowers and enables clients to make informed decisions regarding products that suit their needs and goals. It involves three cross-cutting rules:
1. As a financial adviser, you must act in good faith, ensuring that clients understand the risks and benefits of products. You must provide helpful and efficient support when they have problems and do your utmost to find products that are right for the consumer and offer fair value.
2. It’s essential that you avoid any foreseeable harm to the customer. To do this, the FCA expects financial firms to gather enough information to act to prevent such harm.
3. You must ensure that communication is tailored for your specific client so that they understand all the information. In addition, all channels of communication must work properly (website and other platforms). All products and services must also be designed with straightforward features that clients can easily understand.
The Consumer Duty’s expectations of financial advisers and firms are known as the four outcomes:
Firms must review their current policies and align them with the Consumer Duty.
Firms must provide evidence of the outcomes.
Firms must monitor and reassess outcomes constantly.
They must remedy or mitigate any issues that come to light.
The Consumer Duty policy creates mounds of administration for financial advisers and firms as they work to achieve compliance with the FCA’s requirements. However, although the policy is aimed at protecting the consumer, full compliance also protects the firm when customers are unhappy. It also helps retain your client base.
BNPL schemes allow customers to buy goods with payments that only start at a later date. Delay periods vary. If customers pay on time, these schemes are typically interest-free.
Finder states that as of 2024, 50% of UK adults have used BNPL schemes at some stage, an increase of 36% since January 2023. 53% of those using these services in 2023 also paid late payment fees. The primary reasons for using BNPL schemes include:
Ease and convenience
Spreading of costs over an extended period
Interest-free payments
The opportunity to buy goods that customers can’t ordinarily afford
Although BNPL services appear to help the consumer in some ways, it carries some risks. Many people take on too much debt because of the ease of purchase, causing the FCA to suggest that some restrictions could be created to prevent this from happening.
The regulator’s Consumer Duty policy requires financial services firms to communicate the potentially damaging impact of such products to their clients. If BNPL firms don’t comply with this request, they could incur fines.
Private equity refers to investors funding private companies as opposed to publicly traded ones. Businesses wanting private equity will approach high-net-worth individuals or private equity firms. The object of investing in private equity is to improve their performance and eventually make a profit when they resell the company.
2024 is likely to see a rise in private equity deals, with the market having been relatively stagnant for the last 18 months. This could be due to the lowering of inflationary pressures.
Private equity firms are also beginning to show interest in firms where AI has been adopted to try to cut costs and increase efficiency. Public-to-private transactions increased in 2023, and this trend will probably continue throughout 2024.
Environmental, Social, and Governance (ESG) has gained momentum in the investment sphere. It is a tool used to measure a firm’s business practices and adherence to ethical and sustainability issues. Investors often want to support companies that support social responsibility and environmental sustainability.
Regulatory bodies will require financial advisers to show their commitment to moving toward ESG measures. You will have to familiarize yourself with these principles and incorporate them into your investment processes.
This involves evaluating companies based on their environmental impact, social responsibility, and corporate governance practices to identify sustainable investment opportunities. ESG remains central to the regulatory agenda, with further statements and implementations expected in 2024.
Technological advancements are rapidly transforming the financial arena for both advisers and clients. Although helpful, technology can never replace the human factor in giving financial advice. Robo advisers and algorithms provide generic advice, which can be inaccurate, and they lack the ability to understand the personal situations and objectives of each individual client.
By keeping abreast of the four key themes for 2024, staying compliant, and remaining focused on delivering value to clients, financial advisers will continue to be relevant in helping customers reach their long-term financial goals.
Unbiased Pro will bring new clients straight to your inbox and give you all the tools you need to convert leads. As a financial adviser, this allows you to grow your business and enjoy greater success.
