Consumer Duty: what good looks like for asset managers

The Consumer Duty may have come into effect at the end of July, but the journey doesn’t stop there. If you’re an asset manager with retail end-investors, you must conduct reviews whether your products and services, both new and existing, deliver good outcomes and monitor this on an ongoing basis.

There are three areas you should keep in mind over the coming year: learnings from the FCA reviews – on fair value in particular, how the Consumer Duty impacts your business model, and how to make best use of data to check you’re delivering the right customer outcomes.

Taking lessons from the FCA’s review

The FCA has given a significant amount of guidance to the industry since the publication of its Policy Statement PS22/9 (A new Consumer Duty, feedback to CP21/36 and final rules). In particular, the FCA’s findings from their review of fair value frameworks, published in May 2023 is very helpful.

Here is a quick recap:

  1. Insufficient understanding of fair value: some firms suggested that their products and services delivered fair value without sufficient evidence and analysis.
  2. Single template for assessment of value: some firms used a one-size-fits-all template to assess fair value despite having products with various characteristics and different target markets.
  3. Narrow consideration of factors determining fair value: some firms gave little consideration to factors, other than financial value, received by customers. They also left out other key factors such as the fairness of pricing structures.
  4. Failing to consider outliers: some firms focused on the average outcomes, which undermined their ability to assess whether they were delivering fair value to different groups of customers.
  5. Mind the data gap: Some firms lacked plans to collect necessary data and monitor fair value. Others didn’t consider how much weight they should give to each parameter for a red/amber/green (RAG) rating.

Another useful resource is the FCA’s latest review of processes that authorised fund managers use for assessment of values (AoVs) for the funds they operate, which was published in August 2023.

Although the AoV requirement within the FCA’s COLL sourcebook only applies to managers of authorised funds (such as UCITS), the regulator has highlighted that many of their findings can also apply to firms subject to the Duty’s Price and Value requirements.

Asset managers that don’t manage authorised funds may therefore benefit from the following best practices and areas of improvement:

Area Best practice Area of improvement
Culture Embedding assessments of value (or Fair Value Assessments) into the business-as-usual process for product governance and development.


Assessments of value are treated as a stand-alone annual exercise and not considered in product development or governance process.


Governance Having independent parties (such as independent non-executive directors) to critically challenge the assessments.


Insufficient independence of the reviewing parties or lack of challenges by them.
Data Continuously improving the information and analysis for the assessments of value and considering such additional data points when making decisions.


Ignoring the additional data input without reasonable justification.
Service quality assessment Using relevant data metrics to measure service quality.


Relying on attestations of service providers about the quality of service provided.


Performance assessment When assessing the performance of a product, setting performance thresholds according to the product’s objective and strategies.

Giving poor ratings if the product underperforms against its peers and/or benchmarks.

Keep the rating unchanged if improvement in performance is short-term and not yet impactful.


Focusing on capital growth rather than comparative performance with peers and benchmarks.

Setting asymmetric performance metrics to make it disproportionately difficult for a product to be rated as performing poorly; and / or make it easy for a product to achieve good rating.

Uplifting the rating despite the remedial steps taken having not yet improved the performance.


Cost assessment Conducting detailed activity-based cost allocation at fund and share class-levels.

Using profitability at fund-level to negotiate with service providers with the aim of lowering fees or passing the benefits of cost-savings to the end-investors.

Allocating costs based on average assets under management of the funds.

“Reinvesting” economies of scale back into the business without evidence.

Considering how the Consumer Duty fits into your business model

The Consumer Duty applies to all FCA-authorised firms with retail exposure. It’s inevitable that some firms operating in a niche market might find the process of interpreting and implementing the four good outcomes under the Consumer Duty difficult to reconcile with their particular business models.

One example we have come across in the asset management sector is the managers of investment trusts. These firms are in a challenging position because the products they manage – investment trusts – are not authorised or regulated by the FCA and are classified as Alternative Investment Funds (AIFs) under the AIFMD. At the same time, investment trusts are public limited companies listed on a stock exchange, which means both retail and professional investors can buy or sell the investment trusts’ shares at their own discretion, or when advised by their financial advisors.

The product manufacturer of investment trusts, who have material influence in the product design, investment strategy and delivery of outcomes for the end-investors, are usually Alternative Investment Fund Managers (AIFMs) and are only subject to the regulatory requirements under the FCA Handbook FUND but not COLL. In other words, managers of investment trusts are not required to conduct Assessments of Value according to COLL, but they are now bound by the Consumer Duty and must produce Fair Value Assessments to assess whether the investment trusts deliver good value to the investors.

Additionally, some AIFMs may find it difficult to carry out a target market assessment for the investment trusts listed on a stock exchange given almost everyone can buy their shares. A possible pitfall is that an investment trust is primarily targeted at professional investors, but the manager of the investment trust may have little control over the entry into the product on the secondary market.

It is equally challenging for the AIFMs to assess whether any investors in the investment trust fall outside the positive target market or even fall within the scope of the negative target market of the investment trust. This is because the AIFMs might not have visibility of the end-investors.

The lack of transparency of shareholdings in the investment trusts also undermine the AIFMs’ ability to determine the proportion of vulnerable investors in their products.

In this situation, we recommend that product manufacturers should set out their products’ target market, intended distribution strategies and identify the distributors downstream as much as possible. While firms may not know who exactly the end investors of the investment trusts are, firms should still put in place adequate customer support policies and procedures to ensure they can handle enquiries and complaints from investors.

Making the best use of your data

The FCA has repeatedly emphasised the importance of firms having sufficient management information to assess whether they are delivering good outcomes to consumers. Without adequate, timely data, firms risk being challenged by the regulator on how they arrived at their conclusions in their assessments. For asset managers, management information plays an important role particularly in monitoring target market and price and value.

We have seen firms gathering management information internally, such as operational data related to investor services and product costs, as well as external data for benchmarking purposes. However, as the FCA has noted, outperforming your peers or benchmark indices does not automatically allow firms to keep the product pricing structure unchanged. You should use the data to conduct assessments from multiple aspects at the same time, avoid overly relying on a particular metric for decision-making and overriding other equally relevant data items.

If you use RAG ratings within your management information, it’s a good idea to revisit how you come up with your RAG ratings, including the weight given to each metric and the thresholds for each metric. While your firm may have already established a methodology that seems logical and reasonable, you may wish to further refine it over time. Ask yourself whether it is too easy to achieve a green rating, or whether it is impossible to get a red one. Does your analysis oversimplify the investor population and fail to consider certain segments requiring additional effort to avoid reasonably foreseeable harm? Last but not least, does your management information demonstrate that you are delivering good outcomes across all Consumer Duty outcomes?

How we can help

Our team of specialists can help you determine whether your methodology is making you a market outlier. Having advised a variety of firms in this area, we can verify whether your assessment is proportionate and in line with those of your peers.