Fair Value Assessment: tips to demonstrate your Consumer Duty commitments

Feb 16th '24

Article by Shaneca D’Aguilar-Rock, at Avyse Partners.


On 15 February 2024 the FCA issued a statement confirming that it was writing to 20 of the largest investment advice firms requesting information about the delivery of their ongoing services for which clients continue to be charged after advice has been given. Why? – Price and Value!  


In our experience this is the outcome that Firms have struggled to deliver against the most. The Duty raised the bar even higher, and for some Firms assessing whether a product or service represents fair value has required significant change and a wholly new approach.


With this work the FCA makes clear their expectation that demonstrating fair value cannot be achieved by completing a point in time fair value assessment. Firms need to ensure they have a clear methodology for measuring and monitoring fair value, that is data led and visible across the committee framework.


 Only by assessing value on an ongoing basis can Firms get assurance that the customer is receiving the benefit against which the price was set. For the advising firms in the investment sector this is what FCA is asking Firms to demonstrate. Put simply – how many clients paid for ongoing advice but did not receive the promised suitability review, and as such had their fees refunded?


Given the FCA’s cross-firm work in this area, not just investment advisers should be paying attention. There is a requirement for all firms caught by the Duty to demonstrate price and value and the evidence of ‘how’ is not something that can just be paraded out in the Consumer Duty annual board report. Firms should be regularly reporting to the Board against this metric. Below we’ve highlighted some examples of the types of question that Firms across different sectors should be asking themselves.


Insurance: How many customers have paid for an insurance product and when they come to realise the benefit of making a claim are declined or have had to wait longer than standard practice to have their claim processed?

Motor Finance: How many customers who have been charged a collection fee have been allowed to drift into further arrears without effective forbearance?

Retail banks: How many customers that have paid for a packaged bank account that includes insurance or other benefits that they have never used?

Consumer credit lender: How many customers have been sold a loan when there is more than one indicator that the customer is outside of your target market indicators – for example customer income that is significantly higher than income identified in the target market assessment?

Mortgage Sector: How many clients paid for advice but had their fee refunded as the client defaulted in the first six months as a result of the agreement being unaffordable?


As a stark reminder, we are rapidly approaching the requirement for Firms to produce their first Consumer Duty Board Reports (31 July 2024). Firms need to be thinking now about what data they will need to show senior stakeholders and the regulator that they are demonstrating fair value. If you want more information on how to develop your price and value framework or your Consumer Duty Board report – then do get in touch to understand how we can help.


Source & image: Avyse Partners



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