Closed Products Update: Time to Take Action

As the focus under the Consumer Duty shifts to “Closed Products,” it is essential for advisers to understand the implications.

Closed products are those sold before July 31, 2023, but have not been marketed or sold to new customers since. From July 31, 2024, the Duty will apply in full to these products and services, focusing on the ongoing actions of firms rather than their past actions.

Sheldon Mills, Executive Director of Consumers and Competition at the FCA, emphasised, “We know you may not have every answer. But you need to have a plan for how you will produce one, and how your firm will evidence that it is delivering good outcomes for customers who hold closed products.”

In the “Dear CEO” letter issued on May 16, 2024, the FCA identified five key themes that firms should consider. These themes are not unique to closed products and services but are likely to be more prevalent or acute, prompting special attention from the FCA.

Gaps in Customer Data: Firms must address any material gaps in their customer data and provide evidence that they are acting to deliver good customer outcomes. A critical part of the Duty is that firms assess, test, understand, and can evidence the outcomes their customers are experiencing.

Fair Value: The fair value outcome applies to closed products and services on a forward-looking basis. Firms must assess and demonstrate that they are providing fair value to customers in closed products and services. However, actions from before the Duty came into force will be judged against the rules that applied at the time.

Treatment of Vulnerable Consumers: Firms must consider if any groups of customers holding closed products and services are adversely affected by aspects of the product or service design. In particular, they should ensure that customers with characteristics of vulnerability do not experience poor outcomes.

Gone-Away or Disengaged Customers: Firms should identify less engaged and gone-away customers of closed products and services and take appropriate action. This includes how firms support and communicate with these customers.

Vested Contractual Rights: While firms acting to address potential harm for customers in a closed product or service are not expected to give up any vested contractual rights, they must judge if a contractual term amounts to a vested right. Vested rights include pre-existing contractual rights to which a firm already has legal entitlement, such as annual fees or exit charges.

Action Required

As previously communicated, there are several steps you can take. If you have not already done so, we recommend engaging with the providers of these legacy products to formulate your plans.

Our firm is ready to assist you in several ways:

Review and Consultation: We can help assess your legacy products, considering their purpose, size, and composition to determine the best course of action.

Exit Strategy: If administering these products under the new Consumer Duty is not viable or the final straw for some of you, we can help identify suitable buyers and facilitate a profitable exit for these accounts.

I would like to highlight that our firm has the capability to secure buyers for any number of clients. Historically, we have successfully facilitated transactions for as few as thirty clients.

Please feel free to reach out to us for further assistance or to discuss your specific needs. As always, our initial consultation is complimentary.