Opportunities resulting from The Consumer Duty
Paul Millar, Director of Business Development
Having been a practising Financial Planner for over 30 years until selling my business in late 2022, I like to keep my eye on developments within the profession.
Rightly or wrongly the current hottest topic in town seems to be The Consumer Duty requirements. No doubt many of you are frantically working on complying with the legislation due to come into effect at the end of July. Much of what is contained within the legislation most of you are already doing, however the regulator now requires your process to be documented.
Most of the focus for planning firms up to now has been on their advice service and how it applies across the four Consumer Duty pillars, products and services, price and value, consumer understanding and consumer support. I don’t intend to muddy the waters by straying into this element as I am sure most of you are being bombarded with information on the subject.
I am going to focus on the opportunity presented to stand out from your peers because of the FCA stipulation that you should ‘avoid causing foreseeable harm’.
“Whether harm is considered foreseeable would depend on whether a prudent firm acting reasonably would be able to predict or expect the ultimately harmful result of their action or omission in connection with the product or service.”
Now you may be thinking, how does this create an opportunity?
Imagine one of your married, cohabiting or civil partnership clients who is employed. As part of their employment package, they receive death in service benefits of 4 x salary. Let’s say their salary is £100,000 per annum, meaning their death in service benefit is worth £400,000.
Now visualise them passing away tomorrow, leaving their spouse or partner as the nominated beneficiary of those death in service benefits. You are probably thinking thank goodness they had protection for their family, and you would be right up to a point.
But what if the worst happened and their spouse or partner passes shortly afterwards. Assuming they haven’t spent the £400,000 it now forms part of their taxable estate and as such is potentially liable to inheritance tax.
Ask yourself, could this have been avoided and have you caused foreseeable harm?
As Solidus licensees you know it could have been avoided by establishing an Asset Preservation Trust (APT) and nominating it as the beneficiary of your client’s death in service benefits (DIS). Given that you would have advised proceeds from the DIS were passed to the surviving spouse or partner by way of a loan from the APT they would not have formed part of their estate, potentially saving up to £160,000 in tax for the next generation.
As a former Financial Planner, I am left questioning why it is not mandatory that all clients with DIS benefits are advised to establish a trust to collect benefits on death where possible. I think the regulator has provided you with the perfect reason to talk about the benefits of the APT with more clients and perhaps even with their employer’s HR and/or Finance Director.
If the client chooses not to take your advice, then at least you have made them aware of the potential harm they could be doing to their family’s financial future.