Tomorrow marks three years since the FCA's Consumer Duty took effect, yet gaps in compliance remain
Nearly three years to the day since the Financial Conduct Authority (FCA) introduced Consumer Duty — implemented on 31 July 2023 for open products and services and 31 July 2024 for closed products — some advice firms have still not fully adjusted to its demands.
That is the warning from Paul McMath (pictured top), director at Hastings-based advice firm Prosper Home Loans, who argues that the mortgage industry has been too slow to move away from a transactional model of advice towards one that is centred on demonstrable client outcomes.
Under the new standard, it is no longer sufficient for a broker to secure a competitive rate on a suitable product. Advisers are now expected to evidence proper consideration of foreseeable harm, affordability pressures, vulnerability, protection needs and a client's broader financial position.
"The cheapest rate is not always the best advice," McMath stressed. "A lender accepting a case does not automatically mean the borrowing is right for the client. A mortgage offer does not prove the client fully understands the risks. And a brief mention of protection is not the same as a proper protection conversation."
McMath argues that the shift has implications for all parties in the advice chain. For clients, outcome-focused advice means receiving recommendations grounded in their real circumstances. For advisers, well-documented files supported by thorough fact-finding, affordability checks and vulnerability assessments provide a stronger compliance foundation and reduce the risk of complaints. For lenders, brokers who present accurate and well-contextualised cases enable better lending decisions.
Protection advice is identified as a particular area of concern. McMath contends that, given the scale of a mortgage commitment, advisers have a duty to conduct a substantive conversation about the risks of death, serious illness or inability to work — and to record the client's decision clearly, regardless of whether protection is ultimately taken.
"Advisers do not need to force clients to take protection, but they do need to have a proper conversation, explain the risks, record the clients decision, and make sure the client understands the potential consequences of doing nothing," McMath said.
The commercial case for higher advice standards is also made. Firms that invest in stronger processes and clearer client communication are better placed to generate referrals, reduce complaints and build sustainable practices. Those that continue to treat advice as a product-matching exercise risk increasing regulatory and reputational exposure.
"The firms that will thrive under Consumer Duty are the ones that can evidence the quality of their advice, not just the volume of their completions," McMath said.
He does not argue for a more burdensome or defensive approach to advice, but for greater clarity: advisers should be able to explain why a recommendation was made, what alternatives were considered, and why the final advice was suitable for that particular client.
Consumer Duty, he concludes, has not altered the fundamental purpose of mortgage advice. It has raised the standard to a point where it can no longer be overlooked.
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