As we know, a consumer’s vulnerability may likely change throughout the lifetime of a product – so there is a need to monitor the consumer over this period to ensure the product remains suitable. The FCA doesn’t specify how often this should be done but, in general, many are considering that annual reviews on a proactive basis, as well as reviewing issues on a reactive basis, is sufficient.
A key question is: ‘just whose role is it to undertake this monitoring?’ Is it the intermediary or manufacturer? Consumer Duty requires us all to ensure that Consumer Duty is applied in the interest of the consumer. Indeed, it doesn’t matter who undertakes the monitoring just so long as it happens. Intermediaries may prefer to take on this responsibility and typically, advisers do undertake annual reviews and mortgage brokers will plan in line with fixed-rate terms. Presumably, comparison websites and none-advised sales will be far less likely to take on these responsibilities – so manufacturers will need to have their own processes to properly monitor these customers.
It’s clear that, at the least, either the intermediary or the manufacturer must take on the responsibility for monitoring. It therefore presumably follows that whoever wants to keep the relationship over the long term must be the one to undertake the monitoring responsibility.
Traditionally, manufacturers have struggled with intermediaries – with intermediaries not wanting manufacturers to interfere with ‘my customer’. Consumer Duty requires that all parties must ensure that the monitoring obligation is undertaken, and so there is a clear need for both parties to be absolutely clear whose responsibility this is. I would expect this to become a standard part of distribution agreements – and it's likely to influence the remuneration package.
Arguably, for a fixed-term mortgage, there is little anyone can do should circumstances change over the fixed term, so it seems reasonable that a proactive check is only required a few months prior to the end of the fixed term. But whose responsibility is this? The broker may only be engaged for the particular house purchase, and the consumer may go elsewhere when they want to renegotiate, so the broker may not consider themselves to have the monitoring obligation. Consumer Duty therefore puts a requirement on the broker-manufacturer relationship to ensure clarity over who undertakes the monitoring liability.
For life insurance, there arguably is no need to check annually – but for critical illness and income protection there is a clear monitoring obligation – if only to remind the consumer that they have the product, should they need to claim. For income protection there is also the need to ensure the product remains suitable – matching changes in salary and family circumstances.
Income protection and mortgages may be with the same, or different, manufacturers. Equally, a mortgage broker may want to keep the relationship and the monitoring liability for the mortgage – but not for the protection product.
If the intermediary maintains the monitoring obligation, then presumably the manufacturer doesn’t need to undertake a vulnerability assessment – since they can rely on the intermediary to do this. Some manufacturers may require that intermediaries share their vulnerability assessment, so they already have this information should the consumer elect not to continue with the relationship – or they may put in place their own assessments, independent of the intermediary.
In April, manufactures should be informing intermediaries how they will be implementing Consumer Duty. We expect this will need to include clarification about who undertakes the vulnerability assessment, if the manufacturer will undertake their own assessment or they wish the intermediary to pass their assessment to them.
If manufactures have not made this clear by July, then – for intermediaries – the safe option is to pass this (with the clients’ permission) to the manufacturer, so the manufacturer is made aware of any issues.