What’s the Deal with the UK Consumer Duty?

The UK’s Financial Conduct Authority last year put into place the Consumer Duty. In this episode, Gerald Perez of Interactive Brokers’ UK explains the who, what, why and when of the new duty.

Summary – IBKR Podcasts Ep. 130

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Andrew Wilkinson 

Welcome to this episode of IBKR podcasts. My name is Andrew Wilkinson. I’m located here in Greenwich, CT in the United States, and my guest today is an American sitting over the other on the other side of the pond in the London office of Interactive Brokers.  

Welcome Gerry Perez. How are you? 

Gerry Perez 

Thank you for having me, Andrew. I really appreciate the opportunity. 

Andrew Wilkinson 

Let’s give the audience some background here. In 2023, the UK regulator, known as the Financial Conduct Authority, put into place the consumer duty, which is designed to set a higher standard of consumer protection, specifically within the financial services industry. So joining me is, as I said, Gerry Perez, Director of Interactive Brokers UK.  

Gerry, tell us what is the Financial Conduct Authority consumer duty in the UK? 

Gerry Perez 

So let me begin with a little short story here. Last year I appeared and I spoke at a financial services event in London with several other market players. And this attendee said she was at the event because she had been investing in the market for over 2 years, but had no idea whether she was getting a good deal with her broker as it was too difficult to distinguish what fair value meant to her.  

So she paid to attend the event, to listen to other brokers and ask questions. To understand those brokers value propositions including ours in comparison to her own broker. Also, she could decide whether she was getting the best deal. So I asked her, why didn’t she just go on the Internet, check with other brokers deatils, just like ours? She said she had lost trust in the process. So it was best to go out and find out more. However, that experience to find out more cost her the price of a train journey, her time, and I hope you agree it would have been a better experience if she could just do it seamlessly on the Internet. That goes to the heart of the consumer duty. The consumer duty is the most far reaching set of regulatory standards to improve customer outcomes in the United Kingdon. As you said, in the United Kingdom the regulator is called the Financial Conduct Authority, FCA for short. The FCA aims to regulate and set business standards, which include brokers like IBKR, advisory firms, banks, insurance entities and others through the consumer duty to protect consumers, strengthen consumer trust and more. 

Andrew Wilkinson 

So, Gerry, tell us why the consumer duty was developed. 

Gerry Perez 

So I’m going to go back to my little story of meeting this attendee. As you know, she was confused and frustrated at not getting easy access and clear information about products and services, from her own broker that is. Her only aim was to make an informed decision. of what’s best for her.  

However, like everything, you cannot make informed decisions if you do not have all of the information easily and completely available. This includes before the point of sale and afterwards. How many times have you experienced to get all the information about products, services, cost fees and terms, but you have to send out your contact details to a representative of a financial services company? But what if you don’t want to share your details? What if you do not want to take a call with a sales Rep on the other end who may be conflicted and not objective? These are legitimate concerns and why things have changed. The response by the FCA, after a lengthy process of gathering and considering the concerns of UK consumers by financial services businesses, was the implementation of the duty which was developed to ensure there’s an equal playing field transparency. All to deliver good outcomes to consumers. 

Andrew Wilkinson 

So tell us then, Gerry, what are the material aspects of the consumer duty? 

Gerry Perez 

Oh, that’s a good question there. So let’s cover that. Some of the consumer duties material aspects include number one, know your customer. For example, businesses like our own, we need to undertake reasonable measures to know the requirements and the attributes of our customers. We need to listen actively, take notice and take the corrective actions to improve their customer experience.  

Next, we need to ensure that the products and services that we offer our customers are fit for purpose. How do we do that? Firms like us must be responsible for delivering those products and services. They need to align with the needs and wants of our customers, while also considering the potential risks and restrictions. Next, we need to communicate clearly and effectively. What does that mean? The information that we provide our consumers must be transparent, must be accurate with minimal friction points to the user, and it can’t be misleading so that the individual can make informed decisions.  

Next, price and value. The value-adding products and services we offer our customers need to exceed that of what we charge. And lastly, the consumer support. We need to be engaging, respectful, take a positive approach and interact with our consumers honestly to resolve their issues and improve their experience. Overall, it’s all about being customer centric. 

Andrew Wilkinson 

At the end of the day, what does it mean for customers? 

Gerry Perez 

In a nutshell, the consumer duty is generating favorable customer experiences, both for the individual and any other consumer that’s interested in financial services. But more importantly, it’s before the point of sale, as well as after the point of sale. It’s all about getting good outcomes from your financial service provider. The standards embedded in the duty aimed to protect you, the consumer, whereby the financial services businesses must promote internally and externally fair treatment of their consumers. They must be geared toward building trust. They must aim for consumer-friendly financial systems. And ensure that there’s fair competition. 

Andrew Wilkinson 

So then let’s talk about the broader financial industry. What are the potential impacts of the consumer duty on companies like Interactive Brokers in the UK? 

Gerry Perez 

The UK Financial Services businesses are now being challenged to focus on consumer centricity. This involves a commitment to the duty, which means a cultural change of how to do business. It means allocating resources, money to deliver. To be viable for businesses, it’s all about a cultural and strategic movement to treat consumers fairly, build customer relationships and focus on customer values.  

It’s about usage and application for the products and services that we provide and must be fit for purpose. It’s about delivering onuser-friendlyy experiences. It’s about providing quality products and services at a fair price. It’s about delivering good consumer purchase and transaction experiences. It’s about prompt delivery of good customer service. It’s about communication. Clear information about our products, services, cost and terms. You need to aim to ensure that those customers understand our value proposition, but you need to educate them as well. You need to be dedicated to provide fair value, which is an aggregate perceived of the value that we provide our customers as a whole for all our products and services over the price we charge compared to the marketplace. At IBKR, it’s about focusing on the customer so they get good outcomes. Our belief to being customer centric is simple: we aim to be agile.  

For example, we assess the costs and drivers for a good customer experience. We reflect and we act by implementing actionable tasks to improve the customers’ outcomes. This includes fostering interaction between different departments in the organization, how to improve the customer experience and taking corrective action. It’s about building the communications that foster our customers’ interests that focus on making it easier for the customers to get to our communications, which are clear and aim to be frictionless. 

For example, without the need to give us your contact details first, since day one in the UK. We’ve been committed to providing our consumers with all of the information about our costs, fees and terms on our website. We do so with the aim for the customers to easily make informed decisions.  

Moreover, we want to assist the consumer in making informed decisions before the point of sale. We also add tools like calculators, videos, FAQs. We have the campus on our site to improve the consumer knowledge, skills and experience. We look at the customers’ personas, what they want, when they want it, and how they need it. Which goes to the development of our products and services and it aligns us just for the consumer.  

Our purpose and dedication to the consumer duty focuses on our ability to develop and nurture those customer relationships. It is about our understanding of the complete customer relationship between IBKR’s brand and you, the consumer.  

We hope this earns trust and credibility. By doing so, we believe we have a competitive edge, but more importantly, we drive positive outcomes for the customer. But we ask you- why don’t you go compare us? Go see for yourself and visit us at interactivebrokers.co.uk  

Andrew Wilkinson 

My guest today has been Gerry Perez, Director of Interactive Brokers UK Limited. Thank you very much for joining me. Jerry. 

Gerry Perez 

Thank you! 

Andrew Wilkinson 

And just as a reminder, please join us at ibkrcampus.eu where you’ll find more market podcasts and trading education. 

Disclosure: Interactive Brokers

The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IBKR to buy, sell or hold such investments. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.

The views and opinions expressed herein are those of the author and do not necessarily reflect the views of Interactive Brokers, its affiliates, or its employees.

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