We recently looked at how the price and value outcome of the FCA’s new Consumer Duty requires firms to ensure their clients receive fair value and what fair value really means. But how can firms assess the value of their products and services?
There are no prescribed criteria that products and services must be assessed against. As with much of the Consumer Duty, fair value assessments can be conducted on the basis of what is reasonable for the product or service, and the firm. The regulator allows firms to make their own decisions about which factors they use, as long as they are able to demonstrate a reasonable relationship between the total price of the product or service throughout its use, and the benefits the customer receives. Additionally, providing it does not reduce a firm’s ability to review each product appropriately, a firm may be able to group similar products together when making value assessments.
The FCA suggests that key considerations should be:
- the nature of the product or service, including the benefits that will be provided or may reasonably be expected and their qualities
- any limitations that are part of the product or service (e.g., limitations on scope of cover for insurance products), and
- the expected total price customers will pay, including all applicable fees and charges over the lifetime of the relationship between customers and firms
Firms may also wish to examine:
- manufacturing and/or distribution costs. These may be a key consideration when explaining why similar products are priced differently or why pricing has changed over time
- market rates and charges for comparable products or services and whether they differ significantly to your product or service. A noticeable difference may indicate that other elements of the design or support should be checked to ensure they are functioning properly and provide reasonable benefits for the cost
- Whether a similar or better level of benefits can be received from a lower cost product
- Any accumulated costs and/or benefits for existing or closed products
Aside from using the data immediately available to them, firms may also wish to conduct customer research, such as through surveys or focus groups. This will allow them to speak to different groups within the intended target audience and understand how a product or service may provide fair value for them. Although, as always, firms should bear in mind that everyone will have different interactions with a product or service, and consumer research alone cannot determine fair value.
It is important for firms to remember that they must continue to monitor and assess the value of their products and services throughout their life, as well as reviewing their value assessment processes.
RWA has launched a Consumer Duty gap analysis to help firms implement the new rules and guidance. If you would like more information about this or require any assistance in relation to the new Consumer Duty, please contact your Compliance Consultant. Alternatively, get in touch via email at email@example.com or call 01604 709509.