The FCA has quietly published an update on Consumer Duty reporting following its review of the first annual reports produced under the regime.
The update is largely technical, providing further examples of good and poor practice. But it also contains something more significant: clearer commentary on what the regulator expects from smaller advice firms.
That matters because many advisers have struggled to interpret how Consumer Duty – originally framed around large product providers – should apply to smaller, relationship-based advice businesses.
The key message to smaller firms: Proportionality
One of the more helpful aspects of the update is the FCA’s acknowledgement that Consumer Duty need not look the same in every firm.
Smaller advice firms typically operate with lean governance structures and limited compliance resource. Expecting these firms to replicate the frameworks of large institutions was never realistic. The FCA now recognises this explicitly.
It suggests that smaller firms might benefit from a “critical friend” – an external adviser who can challenge the firm’s thinking and provide independent oversight.
In practice, many advice firms already operate this way. The key difference is that the regulator is now signalling that this kind of pragmatic governance approach is both acceptable and necessary.
That is helpful reassurance. But while proportionality is now acknowledged, the expectations themselves haven’t really changed.
The real focus: Evidence of outcomes
The FCA’s review found that the biggest weakness in many firms’ board reports was management information (MI).
Put simply, some firms were describing their processes rather than analysing the outcomes those processes produced.
For advice firms, demonstrating good outcomes requires showing things like:
- whether clients remain engaged with ongoing advice
- whether complaints reveal recurring issues
- whether charges represent fair value
- whether vulnerable clients are being identified and supported.
None of these ideas are new to well-run advice firms. But Consumer Duty requires firms to evidence them in a structured way.
The FCA also expects firms to learn from client interactions and incorporate those insights into business strategy or culture through a programme of continuous improvement.
For advisory firms this could involve:
- refining client segmentation
- reviewing charging structures
- adapting services for vulnerable or ageing clients
- redesigning communication approaches.
The regulator’s message is clear: Consumer Duty is intended to shape how firms run their business, not simply how they document it.
Where the guidance still feels vague
Despite the FCA’s attempts to clarify expectations, several areas remain ambiguous particularly for advice businesses.
1. Measuring advice outcomes is inherently complex
Consumer Duty was heavily influenced by product distribution models. But financial advice is different.
Good client outcomes aren’t a simple benchmark exercise and depend on a range of factors beyond the adviser’s control, including market performance, client behaviour, and long-term planning decisions.
This makes evidencing outcomes less straightforward than measuring product performance. The FCA has not yet fully resolved this tension.
2. Firms still don’t know how much evidence is enough
The FCA talks about monitoring outcomes. But it is less clear about how much data is required to demonstrate this effectively.
For a smaller firm the answer is less obvious and some firms will inevitably respond by building more complex frameworks than necessary, simply to avoid regulatory risk.
What good looks like for an advice firm
In practice, many well-run advice firms are already close to what the FCA appears to want. But I believe a sensible approach might include:
- Clear client segmentation – Understanding how outcomes differ between client groups for example retirees, accumulators, and high-net-worth families. Also clearly articulating target market and negative target market.
- A small set of meaningful metrics – Rather than dozens of indicators, focus on a handful that genuinely reflect outcomes.
- Board-level discussion of client outcomes – Consumer Duty should be a regular part of board conversations, not just an annual report. And this independent challenge and consideration must be evidenced in the meeting minutes. One should also evidence actions taken as a result of monitoring.
- A willingness to adjust the business model – Whether that means reviewing charging structures, redefining service tiers, or improving client communications. Consumer Duty is less about compliance – and more about how well a firm understands its clients and service model and amends its strategy to accommodate that understanding.
The Bigger Picture
There is a broader point here. The FCA increasingly views Consumer Duty as a marker of a well-run financial services business. It is increasingly becoming a framework through which the regulator evaluates the sustainability of advice firms themselves.
So has the FCA solved the problem for smaller firms?
Not entirely. The regulator has clearly tried to address concerns and has moved toward a more proportionate interpretation of Consumer Duty.
But the guidance remains deliberately principles-based. That means some ambiguity remains. For advice firms, the practical challenge is not simply complying with Consumer Duty, it is interpreting it in a way that improves the business without creating unnecessary complexity.
Firms that treat the Duty as a strategic discipline rather than a compliance exercise will likely find it easier to navigate. More importantly, they may end up building stronger and more resilient advice businesses in the process.