Consumer duty

The Duty applies to all firms providing regulated financial services activities in the UK where they can determine or materially influence retail customer outcomes. Importantly, the requirements apply across the distribution chain, including where firms may not have a direct relationship with the retail customer. As a result, asset managers and those firms that distribute funds must collaborate and share information in order to ensure that they comply with the Duty and ultimately deliver good outcomes for their retail customers.

In its capacity as manufacturer, Vanguard, under the Duty, must develop products and services that meet the needs, characteristics and objectives of an identified target market of customers. Vanguard must make sure that its products provide fair value to customers and that its distribution strategy is appropriate in view of the identified target market for its products and services.

Vanguard must also make sure that customer communications support and enable investors to understand its products and services, their features and risks and offer appropriate levels of customer service. Vanguard must review its products regularly to assess whether they meet the needs of the target market, offer fair value and have been distributed appropriately. Across all of these areas, the FCA expects firms to demonstrate adherence to the cross-cutting rules and with special regard paid to the treatment of different groups of customers, including those with vulnerable characteristics, when assessing whether customers are experiencing good outcomes.

Vanguard will be provided the outcomes of its product reviews, including assessment of target market and the outcome of its assessments of fair value by the FCA milestone of 31 April 2023.  

Along with many other asset managers, Vanguard is working closely with industry bodies and trade associations that represent both asset managers and distributors to develop a common standard for the content and format of the information that will be shared along the distribution chain. Vanguard has actively engaged in and is supportive of these industry discussions which should serve to provide a common industry-wide approach to information exchange in a way that will reduce the burden on both distributors and manufacturers. 

Vanguard will continue to provide information to its distributors on all Vanguard products and services made available to retail customers via distributors in the UK, including model portfolio services, UK and Ireland-domiciled UCITS funds. The Vanguard Irish UCITS domiciled fund range includes both mutual funds and ETFs.

Distributors must make sure that their own products and services – for example, the platforms or advisory services – meet the needs, characteristics and objectives of a target group of customers. They must make sure that their own charges provide fair value and that their distribution strategy is appropriate to the intended target market, as well as providing appropriate levels of customer service and support.

In addition, distributors must consider whether the third-party products that they distribute are likely to result in good outcomes for their customers. For example, distributors should ensure that a product’s target market is taken into account when distributing a product and ensure that their distribution arrangements are consistent with the product providing fair value to retail customers. 

As with the information that Vanguard will provide to distributors, Vanguard has been working with industry bodies and trade associations that represent both manufacturers and distributors to develop a common standard for the content and format of the information that will be requested from its distributors. 

Vanguard expects sub-distributors of its products – those with whom there is no direct contractual relationship, but which form part of the distribution chain for retail customers – to have understood and implemented the Duty as it impacts them in line with the 31 July 2023 due date.

Vanguard does not intend to request information directly from sub-distributors. However, it expects much of the information that it will request from distributors to be informed by the due diligence and oversight arrangements put in place by its distributors over the sub-distribution chain. Vanguard expects those sub-distributors to continue to work collaboratively with other parties in the distribution chain to engage with requests for information and respond to these requests in a timely manner so that data can be shared along the distribution chain.

Vanguard’s approach for receiving information from distributors, will be aligned to the Joint Trade Association Manufacturer/ Distributor Feedback Framework.  Vanguard encourages all distributors to familiarise themselves with the agreed structure of the framework and operational processes that may be required to meet the proposed timelines and data points that will be requested by manufacturers. 

It is understood that the data points will span six key areas comprising (i) sales data by distribution strategy; (ii) sales outside the target market by distribution strategy; (iii) redemption by holding period; (iv) distribution issues; (v) complaints data; and (vi) poor outcomes experienced by clients.  The mechanisms for sharing this information will entail quantitative and qualitative datasets.  The quantitative data which applies to the first three data points is intended to be delivered periodically using a standardised template, and anticipated to cover an eight month period to the end of March 2024 with subsequent reports to be provided at six-monthly intervals thereafter. Qualitative data which applies to the last three data points is expected to be provided to manufacturers as and when specific events arise, with precise mechanisms still to be clarified.

Vanguard will continue to participate and monitor the of the Joint Trade Association Group and anticipates communicating further as outcomes are defined.  Vanguard encourages distributors to also monitor these developments to help ensure they are prepared and fully aligned with the industry expectations for sharing information with Vanguard.