Under the fair value outcome, the FCA has challenged firms to evidence that the total price paid is reasonable in relation to the benefits. The FCA has not provided detailed guidance (although some indicators are starting to be shared of good and poor practice) on how firms should go about undertaking this assessment, emphasising the outcomes-based approach to the Duty. It has indicated that firms can consider many factors, including costs, benefits, and utility to customers, as well as market rates for comparable products.
The FCA has been at pains to emphasise that fair value is not just about price, and that firms should look carefully at the benefits and features of the product and how these meet the needs of the target market and individual customer segments within that. Firms should ask themselves whether the product and service is performing as expected, and then whether the price is reasonable in the light of that performance. It's not about the lowest price solution being necessarily the best value.
Obscure prices, unclear choice architecture, and unsuitable products are less likely to offer value.
The FCA has left significant discretion to firms to decide how best to assess fair value on a sector-by-sector basis and what factors should be included in the assessment. This has led to some differences in approach as firms are familiar with the concept of benchmarking their prices to their competitors but are less familiar with assessing the reasonableness of prices in relation to the costs and benefits to consumers. Benchmarking alone (or over-relying upon it) will not meet FCA's expectations.
Most firms have completed fair value assessments on their entire front book product suite, and FCA is reviewing a selection of these and we expect it to provide feedback in due course. But the FCA does not want this to become a tick box exercise. It wants boards to be looking critically at customer outcomes and providing challenge to the executive, and to have the right MI and data to do that. So there is still a lot of scope for firms to be creative about the kinds of data and metrics that they use to support their fair value assessments.
This brings both challenges and opportunities. On the one hand, the lack of prescriptive framework means that there is some uncertainty and ambiguity about what is necessary. But on the other hand, this presents a big opportunity to harness data flexibly and dual-purpose it to deepen consumer insights and leverage this insight for commercial purposes too. For example, analysis of customer transaction data to highlight patterns and trends in consumer behaviour can be overlaid with customer insights from surveys and focus groups to get a deeper understanding of what's driving that behaviour. This can help to design products and services that are more tailored towards the needs of specific customer groups, potentially increasing customer loyalty and retention, as well as meeting the Consumer Duty requirements more fullly.