Thought for the Week - FCA's Consumer Duty claims its first scalp

The FCA's Consumer Duty came into force in July of this year, introducing what some consider to be the most important regulatory change in a decade.  

Just three months in, the UK's largest wealth manager, St James' Place (SJP), recently announced a major overhaul of its charging structure, providing an early indication that the Consumer Duty is on course to achieve the 'major shift in financial services' that the FCA desires.

Why did SJP act?

SJP's announcement allegedly follows pressure from regulators to overhaul its fee structure to ensure compliance with the new regime, which includes a Principle requiring in-scope firms to 'act to deliver good outcomes for retail customers'. 

SJP had already announced back in July that it would be lowering fees on a broad range of investments products in anticipation of the new rules, but it would appear that, for the regulator, such action did not go far enough. 

Underpinning the new Consumer Duty Principle are various cross-cutting rules and outcomes. Of particular relevance to SJP's charging structure are the:

• price and value outcome: focused on ensuring the price the customer pays for a product or service is reasonable compared to the overall benefits (the nature, quality and benefits the customer will experience considering all these factors); and
• consumer understanding outcome: requiring firms to communicate so that customers understand the firm's products and services, their features and risks, and the implications of any decisions they must make.

Key changes 

The announced changes to its charging structure across the majority of its investments (which SJP is aiming to implement by the second half of 2025) are focused primarily on:  

• removing its much-criticised 'early withdrawal fee' of up to 6 per cent on pensions and bonds money;
• improving fee transparency by separating charges into their component parts (i.e. advice charges, fund charges, and product charges) with the aim of helping clients 'to consider the value they are receiving from each element […] and better enable potential clients to review and compare our charges across the marketplace'; and
• rebalancing advice and product charges (with a particular emphasis on rebalancing charges towards advice).

Impact of the changes

This decision comes with real bottom-line consequences for the SJP Group. Estimated implementation costs are between £140-160 million and net incomes are predicted to fall in the short term (for example, according to the Financial Times, £47 billion of SJP's assets under management were subject to exit penalties as of June 2023). 

The SJP Group may also face increased complaints and claims from certain existing customers who will continue to be subject to early withdrawal charges up until the end of their applicable six-year period. 

SJP's decision will inevitably place increased pressure on its competitors in the wealth management sector, with similar charging structures, to follow suit. Discussions with regulators may already be in train. The question is whether all market participants will have the resources to implement such changes in an already challenging trading environment.  

This is not just a wealth management issue. The FCA recently set out its 14-point action plan on cash savings, promising to take action against firms offering the lowest saving rates to consumers without justifying how those rates offer fair value. 

The FCA will, no doubt, be buoyed up by SJP's announcement and on the lookout for new targets. Firms should therefore be reflecting on whether their own fee structures are Consumer-Duty compliant and if not, to take steps to ensure that they prioritise good outcomes for customers. 

Authors: Lynn Dunne and Paul Ryan-Brown