Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
A new Consumer Duty
Designing Harm Out of Financial Services
Response by Vanguard Consulting Ltd.
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
1
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
To Whom It May Concern:
Firstly, we would like to thank you for the opportunity to provide feedback and commentary
on your new proposed Consumer Duty. We have been working on helping service
organisations change the way they understand and deliver exceptional service, that they
want, to consumers, for 30+ years.
Our response pack includes our preparatory remarks, covering;
•
•
•
•
•
•
•
Background on the Vanguard Method
Failure Demand, the phenomenon
Consumer Duty – A Challenge to current managerial thinking
How Vanguard Method has operationalised Consumer Duty
A Learning framework for the Financial Services system
Nominal Value – A route to designing Consumer Duty
From ‘Push’ to ‘Pull’ – Changing the core paradigm of customer relationship
management
And the completed
•
27 Question set
We see this as just the beginning of the conversation and welcome any questions of clarity
or curiosity. Whilst we need to protect the anonymity of our clients, we are happy to take
you through our empirical catalogue of evidence on all aspects of effective delivery of
Consumer Duty.
Kindest Regards
Ibrar Hussain (Director and Principal Consultant)
Vanguard Consulting Limited
UK Office: +44 1280 822 255
PR@vanguardconsult.co.uk
www.beyondcommandandcontrol.com
Beyond…Command & Control
2
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Preparatory Remarks
Background
Our background is in occupational psychology, over the past 30 years we have been
working with financial institutions, globally, that were looking to transform the performance
of their organisation from a new perspective, one that truly puts the customer at the heart
of what they do, from start to finish. As such, we have an immense wealth of knowledge
of how they work, how well these organisations work and more importantly, why they only
work so well. This is the landscape within which the ask of the Consumer Duty will land
and must be interpreted and made operational. Our insights reveal the true systemic
causes that are the superordinate drivers of Consumer Harm, as you rightly point out,
understanding the systemic relationship between product/service inception, marketing,
sales, service through to consumer outcome has to be understood. But we would argue
that true insight can only be revealed when this is seen from a consumer (or Outside-In, as
a system perspective) point of view. Anchorage in this perspective, offers compelling,
insightful and actionable empirical knowledge.
Discovery of Failure Demand
We would contend that the intent behind Consumer Duty is exemplary, but we fear that it is
not likely to ever materialise into the operational reality you seek. Nothing in the consultation
documentation recognises or acknowledges the greatest lever for the identification and
systemic eradication of Consumer Harm, namely, Failure Demand (a demand caused by a
failure to do something or do something right from a customer’s point of view).
We discovered this phenomenon and defined it in 1989 and have been working to develop
methods to help leaders understand it and eradicate it ever since.
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
3
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
1.
Consumer Duty – A Challenge to current managerial thinking
1.1. Our description of this logic is necessarily multifaceted. We expand on the ten key domains
that we have empirically found to be the most critical, in terms of driving the design and
culture of an organisation. The logic is as follows, one in which the Perspective is ‘topdown, hierarchical and inside-out’, Design is ‘functionally specialised’, Decision making is
‘separated from work’, Measures are ‘arbitrary numbers that are derivative of budget’, the
Attitude toward customers and Suppliers tends to be ‘contractual’, the Role of
management is to ‘make numbers’ and ‘manage people’, the Ethos is one of ‘control’,
Change is seen as ‘reactive, best done through projects starting with a plan and finally
Motivation is seen as ‘extrinsic’.
1.2. We contend that Command and Control, as we have defined it, is the predominant core
operating paradigm and logic within the UK Financial Services sector today. It is a logic
that is coherent, interdependently reinforcing, in terms of the ten domains and ubiquitously
systemic. This context and background are critical because this is the landscape and
environment within which the FCA are seeking to encourage ‘A new Consumer Duty’ to be
made operational.
1.3. To us, the actuality of Consumer Duty is diametrically opposed to the current ‘Command
and Control’ prevailing logic. However, we think it is necessary to sharpen the language
and tone to make this unambiguously clear, precise, and concrete, to ensure a common
and shared understanding amongst all parties.
1.4. We have over the last 30 years helped numerous leading Financial Services systems adopt
the philosophy enshrined in Consumer Duty resulting in a systemic shift in how these
systems were designed and managed. Therefore, we are confident about the achievability
of Consumer Duty and will focus on sharing what we have learnt about how to accomplish
the necessary shift.
4
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
2.
How the Vanguard Method has operationalised Consumer Duty
Financial Objective
2.1. To ensure the successful delivery of Consumer Duty, the Financial Services system must
start by understanding the consumer Financial Objective within its wider context. An
example of this is a consumer wanting to borrow more money to purchase a property in a
school catchment area. The Life Problem the consumer is trying to solve is “to better
educate their children”, the Value Being Pulled from the Financial Services system is “I
want to borrow more money”. This provides greater knowledge of the presenting challenge
and helps to bring focus and clarity to the consumers future financial needs, as opposed
to a consumer wanting to borrow money for their forever home.
Value Being
Pulled
2.2. Secondly the Financial Services system must utilise its empirical knowledge of what is
predictably required for the consumer to achieve their Financial Objective but must not
determine how the consumer wants to ‘Pull’ that Value from the system, such as the how,
where, and when (What Matters). Financial Services systems must also use knowledge of
their capability to deliver against the Value Being Pulled and What Matters of their
consumers to understand, adapt and improve their service as their consumer data
dictates.
What
Matters
2.3. For example, consumers may call in and state “I want to pay off my mortgage and own my
own home, outright, can you help?” On exploration they inform the Financial Services
system that they would like to do this “Now” using their “Debit Card”. At this point the
Financial Services firm knows its current capability to deliver the service requested and
should use this to inform innovation and improvement, to better meet the capability
required by the consumer.
2.4. It also knows that as a result of consumers demand(s) further action will be required, such
as removing their charge from Her Majesty’s Land Register and supplying deeds that they
are obligated under the Consumer Duty to discuss and take the appropriate action on, as
per the consumers’ request.
Consumer Duty delivered
2.5. The Financial Services system will therefore, know if they have delivered Consumer Duty
and if not where they need to take action to avoid Consumer Harm in the future,
systematically and over time, systemically.
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
5
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
3.
A learning framework as applied to the Financial Services system
3.1. The relationship between Purpose, Measure(s) and Method is systemic. A healthy
relationship serves to improve performance by providing knowledge of achievement visà-vis Purpose, thus unifying the system. However, we almost always have found unhealthy
relationships resulting from anchorage in arbitrary measures derived from the budget
creating a de-facto Purpose, “Hit the numbers”, that is devoid of consumers financial
objectives which subsequently obscures knowledge of achievement vis-à-vis Purpose.
3.2. Most often, we find that the performance management regime promulgated by the
Executive Leaders in Financial Services systems is based on the belief of imposing
arbitrary measures on their system, namely on the individual functionally designed working
silos and sometimes but not always the individual frontline staff members.
3.3. As a consequence, this creates a de-facto Purpose for the staff or the ‘functional leaders’,
“Make the numbers” - Make Budget, Make SLA’s, Make Standards, Make Standard Times,
Make activity targets etc… making those numbers, sub-optimises the performance for the
consumer. The first indication of which is the most prevalent of consumer harms, Failure
Demand.
3.4. Studying the system from a consumer’s point of view, it is instantly recognisable and
becomes visible how and why these arbitrary metrics hinder and constrain those that are
doing the work, from creating and delivering the Consumer Duty you seek through this
consultation. However, the FCA’s articulation of Consumer Duty does not address the
issue of arbitrary measures.
3.5. A better approach is for the Financial Services system to derive Measures from Purpose
expressed in consumer terms. This will position the system in a way that enables it to
understand and improve performance systematically and systemically.
3.6. Choices of Method, that is to say how the work works, is now the prerogative of the service
operations. Positioning the locus of control here with the Measures that show achievement
of Purpose, they develop and innovate ways to continually deliver Consumer Duty better.
6
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
4.
Nominal Value – The route to designing for Consumer Duty
4.1. If the Financial Services system understands and responds to What Matters to its
consumers; their Nominal Value, they experience good service.
4.2. The phrase ‘Nominal Value’ was first coined by Genichi Taguchi, he was working in
manufacturing. Taguchi argues that making things to a standard would, by definition, mean
ignoring variation.
4.3. Taguchi argued that we should choose any point on the tolerance continuum and call it
the Nominal Value. Then production should strive to work towards that Nominal Value
making things more and more alike, thus reducing variation. This is the secret behind world
class manufacturing.
4.4. But service is different from manufacturing, in service it is the consumer who sets the
Nominal Value. Just as Taguchi argued in manufacturing, the further the Financial Services
system moves away from their consumers’ Nominal Value the greater the Consumer Harm
being generated.
4.5. In practical terms, if the Financial Services system doesn’t give the consumer what they
want in the way they want it, then the Consumer Harm will rise and so will the cost of
service.
4.6. Therefore, the criticality of understanding systematically and systemically What Matters to
consumers, their Nominal Value, becomes the linchpin of how a Financial Services system
is designed to meet Consumer Duty.
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
7
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
5.
From ‘Push’ to ‘Pull’ – Changing the core paradigm of customer relationship management
5.1. Designing for Nominal Value necessitates a method for gaining knowledge of What Matters
to consumers, then a system that allows consumers to ‘Pull’ value how they want, when
they want, where they want.
5.2. From a design perspective, the principles of Demand, Value and Flow are fundamental.
5.3. Most Financial Service systems are designed on the principle of Functional Specialisation.
This Principle is seen as the primary means to achieve efficiency and optimal utilisation
and therefore the budget.
5.4. The result of this way of thinking is fragmentation, work is siloed. Each silo then works to
optimise itself, the assumption being if each silo is optimised, then the whole is optimised,
not only within firms but across the Financial Services system required for consumers to
achieve their financial objective.
5.5. An illustration at a Life Problem to be Solved level:
A predictable Life Problem to Solve for consumers is, “Protecting the people
and things that matter” in the case of an unforeseen event. Most Financial
Services systems respond to this in a fragmented way. We have
propositions for Home, Contents, Buildings, Vehicles, Life, Health and so
on. Rarely, if ever, do we have a single proposition that “protects the people
and things that matter” and is shaped in a way that consumers would want.
5.6. An illustration at a Value Being Pulled level:
When a team was asked to study how the work works today (Demand,
Value, Flow) they were shocked to learn that not only was the system
overran with Failure Demand (the primary Consumer Harm) but there are
endless numbers of people carrying out Failure Work (work which does not
directly deliver purpose, in consumers terms, against What Matters to them).
What shocked them more was that even when there was opportunity to
prevent or stop Consumer Harm in its tracks, it was ignored.
One such example that affects 000’s of consumers and cost them £millions
per annum is because of money movement required for a consumer moving
home, wanting to borrow more money, whilst staying with their current
lender.
Lenders make solicitors work out how much money is required to pay on
the day of the house move to clear the balance of the mortgage on the
consumers existing property – This can create Consumer Harm in two
forms:
1. ‘Shortfalls’ (inadequate funds to clear the debt)
2. ‘Refunds’ (too much money being paid)
8
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
On the day of moving, for the solicitor to send monies back to the lender for
the ‘old’ mortgage whilst the lender has sent the funds for the ‘new’
mortgage. Consumer Harm occurs here due to ‘Bad Money Movement’
1. Expensive methods to advance funds in readiness for
purchase when enough notice is available for the lender not to.
2. Expensive methods to clear ‘Old’ properties debt.
One team experimented with method, focused on delivery of purpose
expressed in consumer terms, working to principles of ‘Consumer sets the
nominal value’, ‘Only do the value work’ and ‘Proactively own the consumer
to the end’. Thus, the training became ‘Pull’ – what was needed to allow the
team to cater for the variety of demands they were dealing with. They
worked with other parts of the system such as the solicitors to reduce the
movement of money (less operational and conduct risk for the system) and
fees consumers pay to have funds delivered when they need.
Failure Demand created by the old process was eradicated and all parties,
consumer, lender and solicitors involved commented on the immediately
positive nature of the new collaborative design.
5.7. Functional Specialisation drives an inside-out design experienced from a consumer
perspective as a ‘Push’. Each silo will be driven to ‘Push’ their proposition.
5.8. The focus is achievement of the plan (budget). Methods are therefore driven to do what is
required to hit the plan. This drives a consumer relationship that is characterised by the
requirements of the Financial Services system rather than the consumers’ financial
objectives.
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
9
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Q1: What are your views on the consumer harms that the Consumer Duty would seek to
address, and/or the wider context in which it is proposed?
6.
We would go further than the Consultation Papers list and define Consumer Harm as the
failure to allow consumers to define and then ‘Pull’ the value they want from the Financial
Services system, i.e. any failure to Understand & Deliver What Matters (‘Nominal’ Value).
6.1. Failure Demand: “A demand caused by a failure of a financial service organisation to do
something or do something right, from a consumers’ point of view” is the greatest harm a
consumer can suffer. Below we have included a simple example of what this may look like
when you study Financial Services systems, Outside-In from a consumer’s point of view.
6.2. Failure Demand can be created by simply failing to understand and deliver against the
presenting demand, but we believe Consumer Duty goes a step further by obligating firms
and the system to avoid Consumer Harm created by not exploring with the consumer how
they wish to address other known (predictable) aspects of their financial objectives being
achieved. In the above example, what is the best course of action for the consumer and their
deeds?
6.3. Failures decrease satisfaction and place increased Failure Demands on the organisations
concerned requiring them to undertake increased Failure Work, increasing costs that are
ultimately passed on to consumers.
Q2: What are your views on the proposed structure of the Consumer Duty, with its high‑level
Principle, Cross‑cutting Rules and the Four Outcomes?
7.
The proposed structure risks perpetuating and institutionalising current operational practice.
7.1. The intention is to move away from compliance and adherence toward learning and
innovation, we have to ensure the proposed governance (structure) of Consumer Duty enables
the latter. Rather than Principle (as defined by the FCA), Rules (as agreed by the industry) and
Outcomes (of the previous two, as suffered by consumers), a better frame would be Purpose
(as defined by the consumer), Principles (subordinated to this Purpose) and Frameworks (that
drive enablement of Purpose and Principles).
7.2. The Role of the FCA should be to encourage the empirical development of this governance
framework within each of the systems that are responsible for understanding and creating
value for consumers. As a departure from what has prevailed hitherto, to provide operational
clarity it may be useful to offer to support Financial Services systems to create beacons of
practice that enshrine these governance frameworks, as vehicles of exemplary manifestations
of the shift in thinking the FCA are seeking to inculcate, through the adoption of Consumer
Duty.
10
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
7.3. Principles tend to work better than rules and structure should be subordinated, and designed
to, enable or enhance work that achieves consumer outcomes.
7.4. The outcomes consumers receive will be the result of work undertaken in Financial Services
organisations. Any rules must act to unify all elements of service delivery while not inhibiting
the ability of any part of the process to respond to What Matters to consumers appropriately.
7.5. Beyond ‘Don’t break the law’ any rule should be designed and tested empirically for utility Vs
the above.
7.6. Sitting on top of any structure must be the Purpose designed by the consumer.
For example, in a mortgage lender utilising a rules
based approach, we observed less than 1% of
consumers being able to Pull Value from the
Financial Service system perfectly. Helping them
adopt a systems approach that is grounded in
Purpose, utilising Principles that are anchored in
consumer outcomes defined by them, supported
by Frameworks that link the achievement of
Purpose, we typically see 70% to 90% of
consumers being able to ‘Pull’ the value they want
from the system perfectly.
Q3: Do you agree or have any comments about our intention to apply the Consumer Duty to firms’
dealings with retail clients as defined in the FCA Handbook? In the context of regulated
activities, are there any other consumers to whom the Duty should relate?
8.
The definition in the handbook is too complicated as it is defined from an ‘Internal’
perspective. The consumer must be defined from an external point of view, i.e. those initiating
a ‘Pull’ on the Financial Services firms and other external firms that play a part in the creation
of value for a consumer (Financial Services system) i.e. chartered surveyors and solicitors
involved with banks/building societies to help consumers move home
8.1. It is not possible, for a consumer to achieve an outcome for their financial objective (especially
a regulated one) through only interacting with a single firm, in their end-to-end experience.
Consumers are serviced by a system (a collection of firms working together). We would define
a consumer to whom the Duty should relate as to any consumer that is seeking to ‘Pull’ Value
from the system, therefore, outside the system.
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
11
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Q4: Do you agree or have any comments about our intention to apply the Consumer Duty to all firms
engaging in regulated activities across the retail distribution chain, including where they do
not have a direct customer relationship with the ‘end‑user’ of their product or service?
9.
We agree that Consumer Duty must be applied to the System, regulated or not – as per Q3
(the collections of firms that have a contributed to the consumer outcome).
9.1. A primary driver of Failure Demand today is that firms (in a system) operate independently
and use contractual mechanisms, such as, service level agreements to define their
relationship. Rather than their shared and mutual responsibility (Purpose, in customer terms)
to understand and deliver What Matters to the consumer. This often drives the consumer to
be passed from one firm to another, creating even more Failure Demand and causing greater
Consumer Harm.
Public Holidays in 2021
Q5: What are your views on the options proposed for the drafting of the Consumer Principle? Do
you consider there are alternative formulations that would better reflect the strong
proactive focus on consumer interestsand consumer outcomes we want to achieve?
10.
The Consumer Principle must be defined as the Purpose of the Financial Services system
from a consumer’s point of view. To that extent, the issue is one of method i.e. study vs
drafting.
10.1. We would contend that rather than define the Consumer Principle it would be better to provide
clarity on the two things that having a Consumer Principle would drive and enable, namely,
Understanding & Delivery of What Matters. Understanding of the Life Problem that the
consumer is trying to solve, which has given rise to them having to ‘Pull’ Value from the system
(by placing a Demand on the system or pulling value directly through a portal or platform) and
understanding What Matters to the consumer about how, when and where they want that
value delivered. The second point of clarity is the Delivery of What Matters to the consumer,
as specified by them.
10.2. Requiring organisations to be clear about how they are taking responsibility for Understanding
and Delivering What Matters to the consumer would provide a better platform from which to
judge the efficacy that the FCA are seeking to achieve through the formulation and adoption
of a Consumer Principle.
12
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Q6: Do you agree that these are the right areas of focus for Cross‑cutting Rules which develop
and amplify the Consumer Principle’s high‑level expectations?
11.
Cross-cutting Rules address the symptom (Functional design) but will not impact the cause,
Command & Control thinking.
11.1. The notion of Cross-cutting Rules seems to us to be contradictory to the intent of what the
FCA are seeking, namely, a systematic eradication of Consumer Harm. Cross-cutting implies
that the FCA acknowledge and recognise that in order to Understand & Deliver What Matters
to the consumer different functions/departments/divisions (within a firm) and different firms
have to work together and these rules exist to enable this.
11.2. However, as we have highlighted (see Q3 and Q4 above) a better perspective to bring to bear
would be to conceive of the firms Creating Value for consumers as a System. Then rather
than specifying rules, the FCA could promote a principle of the superordinate perspective;
Financial Services firms will conceive of themselves, as a system, from their consumers point
of view (Outside-in). Understanding and Delivering What Matters would be the keystone to
unifying both the firms and their constituent parts, into a coherent whole.
11.3. The two requirements of ‘take all reasonable
steps to avoid causing foreseeable harm to
customers’ and ‘enable customers to pursue their
financial objectives’ require proactivity and
purposefulness. The earliest indicator of
consumer harm is Failure Demand, predictable
Failure Demand indicates a systemic issue,
typically, one that is designed into the system.
Hence, any system that pursues these two
requirements would gain invaluable early insight
into the systemic causes of Consumer Harm.
Failure Demand would represent a systematic
empirical window on the primary causes of
systemic Consumer Harm.
Q7: Do you agree with these early‑stage indications of what the Cross‑cutting Rules should
require?
12.
As stated, we find principles work better than rules. Especially given the intention of the FCA
to use the introduction of Consumer Duty as a means to have firms move away from
compliance, adherence and ticking boxes toward learning and innovation. Creating systems
that are Purposefully and Proactively anchored in knowledge of What Matters to customers
and have a demonstrable desire to continually evolve themselves to getting ever closer to
understanding and delivering What Matters to customers not just for today but tomorrow.
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
13
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Q8: To what extent would these proposals, in conjunction with our Vulnerability Guidance,
enhance firms’ focus on appropriate levels of care for vulnerable consumers?
13.
It is unlikely that these proposals will address the requirements of Vulnerability Guidance. A
self-adaptive system is the only solution to this problem.
When looking at insurance provider for consumer central heating and hot
water systems, ‘vulnerable’ consumers are often sold the benefit of
prioritisation. Should they experience issue with their service, they will
effectively queue jump. The product they are sold tends to come with an
annual** service feature, where their boiler will be inspected to ensure it is
operationally ‘safe’ as per the regulations.
** Annual services may occur in same calendar year but different contractual years
However, when you seek to Understand What Matters to them you often
find they don’t want the faults in the first place. They want engineers to turn
up at a date and time that suits them, carry out an appropriate service that
ensures they have continuous supply of heating and hot water. They in fact
want assurance from their insurance product and service.
One ‘vulnerable’ customer, a team contacted after utilising data about
probability of fault, was amazed, although a little surprised to hear of the
new approach being taken. He mentioned that although his boiler was
working fine, if the team were to visit it needed to be on Wednesday after
the school run with the grandchildren and that they must be finished before
the lunchtime collection.
On arriving the team explained the predictability of the issue in the area for
that boiler before inspecting and uncovering the issue that causes system
failure. The team set about replacing the part before testing and checking
the entire system, as they had improved the effectiveness and therefore may
have placed more strain on the system.
Working with consumer the system learnt that consumers want assurance
and What Matters is that they, and the things that are important to them are
protected, should something go wrong. The team learnt how to use data in
establishing when and where faults are likely to occur and agree with
consumer when they can carry out the work before it creates Consumer
Harm, thus driving proactivity.
They had established empirically what and how the consumer wanted to
‘Pull’ value from the system. They had established how they could create a
Proactive system that strives to Look After consumers and prevent
Consumer Harm.
13.1. When Financial Service systems take responsibility for truly understanding customers, in
terms of their Life Problem, the Value they are seeking to ‘Pull’ from the system and What
Matters to them and use this insight to design, deliver and monitor how and how well things
are working from the consumers point of view, all consumers would get a frictionless and
harm-free experience.
14
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
13.2. As the FCA have acknowledged there is inherent
variety in What Matters to consumers. Variety in
their Life Problems, the Value they seek to ‘Pull’ and
What Matters to them, as well as a variety in their
individual contexts. The Consumer Duty is placing
far greater emphasis on the need of Financial
Services systems to recognise, acknowledge and
design themselves and their offering to reflect this.
13.3. The consequence of Financial Services systems
taking this responsibility, as intended through the
Consumer Duty would create true equity and
fairness for consumers. By creating Financial
Service systems in which the leadership of the
enterprise saw it as their duty to ensure their
systems were designed to deliver optimal Value
Creation and minimal Consumer Harm.
13.4. Further, we might find ourselves in the position of
leading the creation of liberation
Interaction Institute for Social Change | Artist: Angus
Maguire based on the original work of Craig Froehle
Q9: What are your views on whether Principles 6 or 7, and/ or the TCF Outcomes should be
disapplied where the Consumer Duty applies? Do you foresee any practical difficulties with
either retaining these, or with disapplying them?
14.
We would expect Consumer Duty to supersede Principles 6, 7 and TCF Outcomes
Q10: Do you have views on how we should treat existing Handbook material that relates to
Principles 6 or 7, in the event that we introduce a Consumer Duty?
15.
We would expect Consumer Duty to supersede Principles 6, 7 and TCF Outcomes.
Q11: What are your views on the extent to which these proposals, as a whole, would advance the
FCA’s consumer protection and competition objectives?
16.
On its own and in its current form Consumer Duty will not improve consumer protection or
competition.
16.1. The requirement is a market regulator fostering competition in a way that protects consumers,
i.e. the assumption is that competition must design-in consumer protection.
16.2. Delivering Consumer Duty signifies a new era in consumer protection and only stands to
amplify competition. Competition will shift to talking about how organisations Create Value in
consumers lives.
16.3. Oversight will allow the FCA to see the data that backs up the firms capability to deliver the
service promoted and offered to consumers.
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
15
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
16.4. Whilst firms will seek to understand and act with integrity and transparency about their current
capabilities to deliver the Value and service, the consumer is ‘Pulling’ from the organisation.
Q12: Do you agree that what we have proposed amounts to a duty of care? If not, what further
measures would be needed? Do you think it should be labelled as a duty of care,and might there
be upsides or downsides in doing so?
17.
No, despite the best of intentions.
17.1. The introduction of Consumer Duty at a systems level, will ensure that Value is defined and
‘Pulled’ by consumers – as per Q3 (the collections of firms that have a contributed to the
consumer outcome). The move away from mere compliance and adherence is going to require
Financial Services systems to be purposeful and proactive in terms of understanding and
delivering What Matters to consumers. This shift will place responsibility with the Financial
Services systems and require them to continually evolve and adapt to the changing ‘What
Matters’ of their consumers.
17.2. Each Financial Services system must be free to make its own informed choice as to the
products and services that it may choose to offer, but these too must be grounded in
knowledge of the consumer and What Matters to them and take into account the interaction
of firms within the system to ensure Value is realised for the consumer and their financial
objectives through the continual, systematic and eventually systemic eradication of
Consumer Harm.
17.3. The FCA has through the promulgation of this Consumer Duty created its own duty of care
responsibilities. The FCA is seeking to be innovative, assertive and adaptive, these aspirations
are subordinated to important anchors, firstly recognising the FCA is not a “zero failure
organisation” and are seeking to become “a learning organisation”.
17.4. Therefore, the FCA have to conceive how they will Lead, Enable and Support the effective
adoption of Consumer Duty within the Financial Services system. This will represent a major
departure from how the FCA have operated hitherto.
Q13: What are your views on our proposals for the Communications outcome?
18.
Communications (content, delivery method(s)) must be defined with the consumer, currently
your proposals do not make this explicit.
18.1. In our response to Q5 (page 12), we outline an alternative formulation of how to not just ensure
eradication of Consumer Harm that the Communications outcome seeks to achieve but will
allow firms to systematically solve the problem of variety.
16
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Q14: What impact do you think the proposals would have on consumer outcomes in this area?
19.
As mentioned in our response to Q2 (page 10), the proposed structure risks perpetuating and
institutionalising current operational practice and therefore the intended impact of eradication
of Consumer Harm emanating from communications may not be realised.
19.1. In the same answer (Q2, page 10), we outline an empirically arrived alternative at that results
in consumers being able to ‘Pull the Value’ they want from the Financial Services system, first
time, every time.
Q15: What are your views on our proposals for the Products and Services outcome?
20.
Product and Services outcomes must be defined by the consumer, currently your proposals
do not make this explicit.
20.1. We want competition to be effective, delivering to consumers the products and services they
want. To achieve this, Financial Service systems must provide products and services that are
fit for Purpose, that represent “fair value”, ones that help consumers achieve their financial
objectives and do not cause them harm.
In a Financial Service system that helped consumers with their Life Problem,
“help me live the life I want beyond work”, through studying their system
they learned consumers were placing predictable demands on the system,
pre-retirement. The Value Being Pulled was for “I want some of my money”.
These consumers wanted to partially cash their bonds. What Mattered to
them was the timeliness of the movement of their money and the method
by which it was moved.
The current system was not designed to allow consumers to Pull the Value
they wanted, in the way they wanted it, thus causing harm. Redesigning the
system based on the knowledge gained from consumers about what they
wanted and how they wanted it, transformed the outcome for consumers.
Q16: What impact do you think the proposals would have on consumer outcomes in this area?
21.
Consumer outcomes will remain largely unchanged until such a time as the Financial Services
system moves away from a ‘Push’ to a ‘Pull’ design.
21.1. The change required is from products to, products as service. It is delivered by Financial
Services systems currently fragmented along product lines and functional boundaries. As
outlined in Preparatory Remarks - Section 5 (page 8) above From ‘Push’ to ‘Pull’ – Changing
the core paradigm of customer relationship management
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
17
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Q17: What are your views on our proposals for the Customer Service outcome?
22.
The consumer must be able to set the ‘Nominal Value’ on the service, currently your proposals
do not make this explicit.
22.1. The number of outcomes that consumers, in their terms, are looking to achieve, their ‘Nominal
Values’, is finite and small. Delivery of achievement against these ‘Nominal Values’, should be
used to understand, learn, and innovate, thus improving Consumer Duty.
Q18: What impact do you think the proposals would have on consumer outcomes in this area?
23.
Consumer outcomes will remain largely unchanged until such a time as the Financial Services
system moves to a ‘Nominal Value’ systems design.
Q19: What are your views on our proposals for the Price and Value outcome?
24.
As with Q17 consumers must be able to set their ‘Nominal Value’ on the service, currently
your proposals do not make this explicit. Only then will it truly be able to meet the Price and
Value outcome.
Q20: What impact do you think the proposals would have on consumer outcomes in this area?
25.
Consumer outcomes will remain largely unchanged until such a time as the Financial Services
system moves to a ‘Nominal Value’ systems design.
Q21: Do you have views on the PROA (Private Right Of Action) that are specific to the proposals for
a Consumer Duty?
26.
The effective adoption of Consumer Duty as described in this response, is one in which
consumers would only be subject to illegal Consumer Harm. For which redress in criminal
and civil proceedings would be appropriate.
Q22: To what extent would a future decision to provide, or not provide, a PROA for breaches of the
Consumer Duty have an influence on your answers to the other questions in this consultation?
27.
It has had no bearing on our response
Q23: To what extent would your firm’s existing culture, policies and processes enable it to meet
the proposed requirements? What changes do you envisage needing to make, and do you
have an early indication of the scale of costs involved?
28.
Vanguard Consulting Ltd have been operating from an entirely different perspective since our
inception. Being routed in consumer we have been systematic in learning how to help systems
create Value for them.
18
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
28.1. Whilst there is no real change for the way in which we work, the fundamental principles
needed to allow Consumer Duty to work effectively are diametrically opposed to how most
Financial Services organisations (firms) work today. Adoption will result in costs reducing.
28.2. The adoption of this logic will eradicate Failure Demand & Failure Work thus creating the
capacity for optimising and creating even more value and as such improving the systemic
economics for the whole Financial Services system.
Q24: If you have indicated a likely need to make changes Which elements of the Consumer Duty
are most likely to necessitate changes in culture, policies or processes?
29.
Consumer Duty necessitates a change in thinking, from thinking rooted in Command and
Control logic to one of Beyond Command and Control logic.
29.1. As we have outlined in our preparatory remarks (pages 3 through 9 above) the inherent logic
of Consumer Duty is diametrically opposed to the prevailing logic in most Financial Services
systems today. The logic being advocated through the Consumer Duty is that of Beyond
Command and Control. As with our earlier description of the current Command and Control
logic, we will use the same ten empirical domains to provide clarity of the contrasting logic
that embodies Consumer Duty and would be most critical, in terms of driving the design and
culture of an organisation. The logic is as follows, one in which the Perspective is ‘OutsideIn, as a system’, Design is based on ‘Demand, Value and Flow’, Decision making is ‘integrated
with work’, Measures are ‘real and actual subordinated to illuminating achievement of
Purpose, in customer terms’, the Attitude toward customers and Suppliers tends to be ‘what
matters and co-operation / mutuality, respectively’, the Role of management is to ‘take action
on the system’, the Ethos is one of ‘learning’, Change is seen as ‘adaptive, integral and
emergent’ and finally Motivation is seen as ‘intrinsic’. We contend that Beyond Command and
Control as we have defined it is the core operating paradigm and logic that will be natural
consequence of adoption of Consumer Duty
Q25: To what extent would the Consumer Duty bring benefits for consumers, individual firms,
markets, or for the retail financial services industry as a whole?
30.
The shift that would be required to adopt Consumer Duty effectively, as described in this
response, would have a wholly positive impact on consumers, markets and Financial Service
systems.
Q26: What unintended consequences might arise from the introduction of a Consumer Duty?
31.
There could be a significant number of unintended consequences if the Financial Services
systems are not Led, Enabled and Supported, by the FCA, through to the effective adoption
of Consumer Duty.
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
19
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU
31.1. These unintended consequences are too numerous to call out individually. However, some of
these may be as follows;
•
•
•
•
Improper use/understanding of the term Failure Demand
Misapplication of an Outside-in, as a system from a consumer’s point of view
Fear of reprisal and possible fines/sanctions may see the system reduce their risk
appetite and not be there for consumers to help them solve their Life Problems in a
way that matters to them. Reducing competition in some market areas.
If the PROA is included, law firms acting like ambulance chasers, that creates a claim
culture that we all loathe so much from the extensive “We are told you were involved
in a car accident, is that correct?” telephone calls.
Q27: What are your views on the amount of time that would be needed to implement a
Consumer Duty following finalisation of the rules? Are there any aspects that would require
a longer lead‑time?
32.
This is about making an informed choice to ‘Give-Up’ the inherent Command and Control
logic and ‘Replace-It’ with the Consumer Duty logic (Beyond Command and Control). The
informed choice will take very little time. However, the adoption and continual perfection
towards the Consumer Duty logic will be a continual journey, rather than a destination.
32.1. Having supported numerous leading Financial Services systems in effectively moving from a
design grounded in a ‘Command and Control’ logic to one grounded in a ‘Beyond Command
and Control’ logic (as postulated by Consumer Duty), the timescale required to achieve the
shift is dependent on the method used.
32.2. The shift requires three key steps, Understanding and Improving in line with the different logic,
then effectively Growing the new logic across the system, systemically and finally making the
new system normal and sustainable.
32.3. The timescales to achieve these three key steps will range from;
• 6 – 12 weeks to Understand and Improve
• 8 – 26 weeks to Grow the new logic
• 6 – 12 weeks to make the new logic Normal and Sustainable
20
Vanguard Consulting Ltd
1 Nelson Street
Buckingham
MK18 1BU