Embrace 'The Duty': Consumer Duty is now the centrepiece for firms' compliance

Of course, adherence to The Consumer Duty is mandatory, but its application has the power to improve your business and make you more successful. Here is refresher which can be used to help raise your game.

The Duty has been with us long enough for practitioners and the regulator to measure its beneficial impact on standards, transparency and professionalism. Certainly, from our perspective, the framework that is applied through Consumer Duty has helped our firms improve all aspects of delivering mortgage advice.

At the heart of The Duty is the fiduciary responsibility imposed by the regulator on practitioners to work diligently in the client’s interests to achieve, in FCA parlance, ‘good outcomes’ for clients in line with their needs and expectations.

Any mortgage adviser will know that success comes from the application of technical knowledge combined with a proficient service, which is where The Duty is also focussed. This article outlines three relevant areas, with some practical tips to help you comply and deliver those ‘good outcomes’.

Learning outcomes:

By the end of this CPD article, you will be able to:

Section 1. Explain the core principles of the FCA’s Consumer Duty. 

This article provides a refresher on the three cross-cutting rules and four outcomes of Consumer Duty, with insights on how they apply to the mortgage advice process.

Section 2. Identify practical steps to embed Consumer Duty with your firm’s interactions with clients.

Firms will learn specific strategies to ensure their advice process aligns with Consumer Duty, including assessing client understanding and delivering fair value.

Section 3. Recognise the importance of evidence-based compliance and effective record-keeping.

Firms will gain an understanding of how to document compliance with Consumer Duty and prepare for potential FCA scrutiny.

Section 1. The core principles of Consumer Duty

The FCA’s Consumer Duty is built around a new Consumer Principle (Principle 12)  which states: “A firm must act to deliver good outcomes for retail customers”. This is supported by three cross-cutting rules and four consumer outcomes.

The cross-cutting rules

- Act in good faith: Prioritise client interests and avoid conflicts of interest.
- Avoid causing foreseeable harm: Recommendations must not expose clients to unnecessary risks, including unaffordable mortgage products.
- Enable and support customers to pursue their financial objectives: Advice must be tailored to help clients achieve their home ownership or financial goals.

The four consumer outcomes:

1. Products and services – mortgage products must be designed to meet the needs of target market, avoiding harm.
2. Price and fair value – charges, interest rates and fees must be proportionate to the benefits offered to customers.
3. Consumer understanding – advisers must provide clear, timely and understandable information to enable informed decision-making.
4. Consumer support – firms must offer responsive, accessible and effective customer service to assist borrowers throughout their mortgage journey.

The overarching requirement is that firms must act in good faith, avoid foreseeable harm and enable customers to pursue their financial objectives.

In practice: firms can build structure into their advice process to ensure that they consider all the key compliance points for each recommendation. 

Consider a typical example. When recommending a variable rate mortgage our adviser ensures that:

- The recommended mortgage aligns with the client’s financial situation and goals (Outcome 1).

Circumstances include fact that our client was able to provide a significant deposit from the sale of previous property, achieving a relatively healthy loan-to-value of 70%. Our client is self-employed and whilst he expects to overpay the minimum rate, he is keen to ensure that there is flexibility in case of leaner periods that may arise from time to time. Another feature offered by the variable mortgage chosen is an ability to switch to a fixed rate mortgage without penalty.

- Offers competitive pricing (Outcome 2).

This has been established through extensive research of possible candidates.

- Is explained in plain language (Outcome 3).

Every aspect of the loan was explored and worked illustrations used to confirm understanding of what the long-term costs would be in a variety of repayment scenarios.

- Is backed by reliable post-sale support (Outcome 4).

The mortgage adviser has agreed to keep in touch post-sale to: i) help review affordability and ensure client is managing payments and ii) keep the client informed of interest rate changes in case circumstances favouring a switch to a fixed rate arise.  

Section 2: Identify practical steps to embed Consumer Duty with your firm’s interactions with clients.

Here are some practical steps to help comply with Consumer Duty. As we have seen, advisers must adapt their processes to consistently deliver good outcomes.

Step 1: Assess client needs thoroughly

• Conduct a detailed fact-find to understand the client’s financial circumstances, goals, and vulnerabilities (e.g., low financial literacy or health issues).

• Example: For a client nearing retirement, explore mortgage terms that avoid extending debt into pension years unless explicitly justified.

Step 2: Tailor recommendations

• Match products to the client’s profile, avoiding a “one-size-fits-all” approach.

• Example: Recommend a mortgage with flexible overpayment options for a client with irregular income. 

• Example: given the rising cost of living, there may be an increasing demand for advice for second charge and lifetime mortgages. It is important that the needs of consumers are fully considered as well as the costs and risks involved in these products. Rising interest rates and less disposable income may impact the suitability of some products for certain consumers.

Step 3: Communicate clearly

• Product information should provide a balanced picture of costs and risks as well as the benefits of the product. 

For example, where a lifetime mortgage product may offer reduced (or no) monthly payments, the overall total costs and the compounding of interest may not meet the customer's needs, and an alternative product may still provide a better outcome. The Duty expects communications to be tailored according to the complexity of the products and characteristics of the consumers intended to receive them, including recognition of any characteristics of vulnerability.

• Use plain English to explain mortgage features, risks, and costs. Avoid jargon like 'LTV' or 'ERC' without clarification.

• Provide a written summary of advice for clients to review at their own pace.

Step 4: Demonstrate fair value

• Compare product costs (e.g., interest rates, adviser fees) against market alternatives to justify recommendations.

• Document why the chosen mortgage represents good value for the client’s specific needs.

• NB: MCOB 12 provides that firms must ensure that ‘any regulated mortgage, home reversion plan and regulated sale and rent back agreement they enter into does not impose, and cannot be used to impose, excessive charges upon a customer’. The FCA will address where excessive fees are being charged and will ask these firms to explain how these have been calculated.

Step 5: Offer ongoing support

• Check in with clients post-completion to ensure the mortgage remains suitable, especially if their circumstances change (e.g., job loss).

• Provide clear contact details for future queries.

• Firms must also ensure that customers do not face unreasonable barriers, for instance when making a complaint.

FCA guidance emphasises duty of care for vulnerable customers. The Duty requires that firms must ensure that staff have the right skills and capability to recognise and respond to the needs of those who are vulnerable. This extended responsibility extends ‘throughout product design, flexible customer service provision and communications’. Firms have the obligation to monitor and assess whether they are meeting the needs of vulnerable customers, as they would all other customers.

Section 3: Evidence-based compliance and effective record-keeping.

Consumer Duty places a strong emphasis on accountability. The FCA expects firms to demonstrate how they deliver good outcomes, which requires thorough record-keeping!

Key records to maintain

• Client fact-finds: Document financial details, goals, and vulnerabilities.

• Advice rationale: Explain why a mortgage product was recommended, linking it to the client’s needs and fair value.

• Communications: Retain copies of emails, letters, or call notes showing clear explanations.

• Outcome monitoring: Log follow-ups, including complaints of course, to prove ongoing support.

Key compliance activities

• Conduct regular file reviews to ensure Consumer Duty compliance.
• Use client feedback (e.g., surveys) to assess whether good outcomes are being achieved and adjust processes accordingly.

Conclusion

Consumer Duty puts customers front and centre of the advice process. By embedding transparency, fairness and proactive support into their practices, mortgage advisers can ensure compliance while delighting their customers with great service.