YOUR MONEY: How consumer duty helps you

Peter McGahan
Peter McGahan

IN July, Consumer Duty came into action, with financial firms having to prove they are doing what they need to deliver good outcomes for customers on products and services, price and value, consumer understanding and consumer support. Firms need to end rip off charges and fees and make it simple to cancel or switch products where a customer is disadvantaged.

I’m puzzled by how that will apply, because how do customers know? They wouldn’t knowingly enter a poor charging plan, would they? But they do.

When the superwoman of finance, Helena Morrissey, joined St James’s Place, she told the Telegraph newspaper that she would struggle to explain the firm’s charging structure. She went on to say that she hadn’t met anyone who could completely articulate how the charges worked in a sentence. When she left 14 months later, it was reported that she still didn’t understand it.

Consumer duty lays it on the table that customers need clarity, but, remember that transparency and clarity are very different. If the superwoman of finance couldn’t explain after over a year, what chance does a consumer have?

In the media you can read how St James’s Place have now announced it will cap annual management charges on some products where customers have been invested for more than 10 years, but the changes only come into play after 2025. This, in my opinion, doesn’t match the consumer duty spirit, and should come into play immediately.

St James’s Place doesn’t offer independent advice and is restricted, therefore the benefits available of lower charges and the better fund performance aren’t available to them. Similarly, there are products available to customers via an Independent Financial Adviser and the whole market that just won’t be available to a St James’s Place adviser.

You may remember my analysis on two ‘structured guaranteed deposit plans’ last month. There is absolutely no chance any financial adviser could explain those charges to a customer, and that customer be able to walk away and articulate them.

There is still much to be done to ensure all the financial products and charges are wholly transparent but also clear. The same applies to their benefits.

The FCA explains that an average up-front fee is around 2.4 per cent for an investment or pension. This is across independent financial advisers and restricted advisers. St James’s Place, however, charge 4.5 per cent of your initial investment. Furthermore, there is a 1.5 per cent product charge which is applied.

Those charges are taken out of your investment if you try and encash in the first six years which is normally a deterrent but remember you will pay them either way if you encash, or if you keep the plan going.

They should just state: “I’m charging you six per cent” (because they are) “and this is the value you will be receiving for this”. That makes it simple and clear and the true impact of the customer charge can be explained to the buyer.

In terms of value with the charges, I’ll not cover that in detail, as its not nice reading. Yodelar do that well enough, so you can look at it on their website, but the top line that 80 per cent of funds are rated as poor performing, makes me consider that paying more than double for my up-front fees to a non-independent financial adviser isn’t good value.

:: Peter McGahan is chief executive of independent financial adviser Worldwide Financial Planning, which is authorised and regulated by the Financial Conduct Authority. If you would like a complimentary review of your investments, call Darren McKeever on 028 6863 2692, email or visit