The recent Court of Appeal ruling regarding undisclosed commissions is a catalyst for transformation in consumer finance. This decision is an opportunity for finance providers to elevate transparency and adopt more consumer-centric practices.
As expectations around compliance and consumer protection grow, finance providers could be prompted to shift from traditional sales roles toward more advisory ones, prioritising transparency with customers.
This article will explore the implications of the ruling, particularly in terms of fiduciary duty and the potential for finance providers to move towards consumer-focused, advisory roles.
How the ruling is pushing a shift to customer centricity and transparency
On October 25th, the Court of Appeal’s ruling declared that car dealers must disclose any commissions they receive from lenders, and that customers must provide informed consent for such payments. It highlights a shift towards transparency and clarity in consumer finance, particularly around how and why financial products are recommended. This ruling aligns with a larger industry trend towards customer-centricity, emphasising practices that foster stronger long-term relationships between firms and customers.
At the heart of this ruling and shift is the concept of fiduciary duty, which is the responsibility of firms to act in their customers’ best interests. When it comes to finance, fiduciary duty is about ensuring that customers have a clear understanding of the financial products they’re purchasing and how these products align with their needs. The Court of Appeal’s decision places fiduciary duty at the forefront, reinforcing that informed consent and transparency are essential for safeguarding consumer interests and establishing long-term trust.
Why fiduciary duty and informed consent are the foundations of compliance in finance
Fiduciary duty in consumer finance means that firms are expected to prioritise their customers’ interests by providing complete, transparent information about financial products. In this context, informed consent goes hand in hand with fiduciary duty, requiring that customers be fully aware of all relevant terms and especially any commissions involved in their finance agreements.
This ruling presents an opportunity for finance providers to strengthen compliance frameworks by implementing more consumer-friendly disclosure practices. Such practices might include simplified explanations of fees and commissions or clear outlines of customer rights. By implementing these practices, firms can strengthen their customer relationships and improve retention in the long run.
From intermediary to advisor - why the ruling has the potential to reshape industry roles
The ruling’s emphasis on transparency and fiduciary duty is likely to drive a shift in how finance providers and brokers view their roles. Traditionally, these firms have operated as intermediaries that focus and facilitate transactions on the consumers behalf. Now, with the spotlight on consumer protection, finance providers have an opportunity to redefine themselves as trusted advisors rather than merely transactional agents.
In an advisory role, finance providers would go beyond arranging finance to actively guiding customers, helping them understand the intricacies of the products they’re purchasing. This shift aligns closely with the Financial Conduct Authority’s (FCA) Consumer Duty initiative, which emphasises the need for firms to ensure that customers benefit from the products and services they buy. To comply with this vision, firms may need to reframe their approach, focusing on creating value-driven, benefit-focused experiences that improve outcomes for customers.
Adopting an advisory approach could offer a competitive advantage as well. Firms that prioritise consumer education and support customers in their decision-making processes are more likely to foster loyalty and long-term trust. With consumers now expecting more transparency and support from financial providers, companies that proactively meet these needs may find themselves better positioned to build a solid customer base that values and trusts their guidance.
Building a transparent, consumer-centric future in finance
The Court of Appeal ruling on commission disclosure represents a turning point that encourages consumer finance providers to evolve in meaningful ways. By embracing transparency, prioritising fiduciary duty and potentially shifting toward advisory roles, firms can enhance both compliance and customer trust. This change aligns with regulatory standards as well as the expectations of a market that increasingly values ethical, consumer-centred business practices.
As the industry responds to this ruling, firms that prioritise transparency, education and advisory support will stand out, driving consumer finance towards a more sustainable, customer-centric future. Embracing this new role goes beyond compliance, helping to build relationships and foster trust that will benefit both consumers and providers for years to come.
