Consumer Duty and IFA PII: PRIN 2A implications for advice firms

~5 min read

Reviewed by Matthew Bartlett, Director · Last reviewed 2026-07-06

The FCA's Consumer Duty is the most significant conduct-regulation change to affect UK IFAs since the Retail Distribution Review. It came into force for new products and services on 31 July 2023 and applied to existing products from 31 July 2024. Sitting in PRIN 2A of the FCA Handbook, it imposes a new principle that firms "must act to deliver good outcomes for retail customers" and elaborates that principle into four cross-cutting rules and four outcomes. From a professional indemnity insurance perspective, the Duty does not create new claim types — it raises the standard against which existing advice is judged. This entry sets out how the Duty operates, what it means for IFA PII, and how insurers are underwriting Duty compliance.

The four outcomes

The Duty defines four outcomes for retail customers.

The first is products and services — the products and services offered must be designed to meet the needs, characteristics and objectives of the customers in the identified target market. IFA firms are usually distributors rather than manufacturers of the products they recommend, but they have distributor obligations under the Duty and must not distribute products outside the manufacturer's target market without a supportable rationale.

The second is price and value — customers must receive fair value from the products and services. For IFAs, this bites hardest on ongoing service fees. A firm charging 0.75% or 1% per annum on advised portfolios must be able to demonstrate what the client is receiving in exchange for that fee, and that the fee represents fair value against alternatives.

The third is consumer understanding — communications must be clear, fair and not misleading, and must be tested for understanding. Suitability reports, marketing materials, terms of business, and ongoing communications all fall within scope. Post-Duty firms have increasingly moved from process-focused suitability reports to outcome-focused ones.

The fourth is consumer support — customers must be able to realise the benefits of the products and services purchased. Ongoing engagement, review processes, and support responsiveness all fall within scope.

The cross-cutting rules

Alongside the four outcomes, the Duty imposes three cross-cutting rules: firms must act in good faith, avoid causing foreseeable harm, and enable customers to pursue their financial objectives. The "avoid causing foreseeable harm" rule has proved consequential in PII terms — it captures conduct that might have been defensible under a strict-COBS reading but is now vulnerable to challenge on foreseeable-harm grounds.

What the Duty means for existing advice

The Duty applies to existing products and ongoing relationships from 31 July 2024. This is where the PII implications sharpened. Advice given before 2024 that was suitable under COBS 9 at the time is still assessable under the Duty's fair-value and consumer-support outcomes for the ongoing service being delivered. A client on a legacy 1% ongoing service fee, receiving relatively light-touch annual reviews, is a foreseeable-harm risk under the Duty even where the underlying advice was suitable at inception.

The consequence is that IFA firms have been reviewing their client book, segmenting by fee-value, and either restructuring services to deliver more for the fee or reducing the fee to match the service. Firms that fail to do this expose themselves to claims quantified as the excess fee over what fair-value delivered would have supported.

Insurer underwriting response

IFA PII insurers have adapted their proposal-form questions to capture Duty compliance. Firms are now asked at renewal:

What proportion of the client book has been reviewed for Duty compliance since July 2024? Firms that have not yet completed a substantive Duty review face harder terms.

What is the firm's fair-value assessment for its ongoing service? Firms with a documented methodology receive credit.

How does the firm evidence consumer understanding? Firms with client-understanding confirmations built into suitability reports receive credit.

What is the firm's response to the "avoid foreseeable harm" rule? Firms that can articulate specific harm scenarios and mitigations receive credit.

The firms that best answer these questions are the firms that have taken the Duty seriously as a business-change project rather than a compliance-tick exercise. The premium and appetite differentiation between well-prepared and unprepared firms has widened materially since the July 2024 existing-products deadline.

Where the Duty generates new claim volume

Three claim scenarios are emerging under the Duty in 2025-2026.

First, fair-value complaints on ongoing service fees. Clients — often prompted by press coverage of the Duty — are challenging whether the 1% they pay each year is justified by the service received. The claim quantum is the excess fee over the fair-value figure, aggregated over the years the fee has been paid.

Second, consumer-understanding challenges on complex products. Clients arguing that the client-understanding step at the time of advice did not actually deliver understanding, and that the advice was therefore not made on a Duty-compliant basis. Structured products, DFM portfolios, and complex tax-planning vehicles are particularly exposed.

Third, consumer-support gaps — clients arguing that the firm failed to enable them to realise the benefits of the product recommended, for example through inadequate ongoing review or a failure to flag material product changes.

Interaction with existing claim types

The Duty does not displace COBS 9 or COBS 19 or the DISP framework — it sits alongside them. A single client complaint may raise both a COBS 9 unsuitable-advice claim and a Duty fair-value claim, and the FOS will handle both under its fair-and-reasonable jurisdiction. Firms should not assume that satisfying COBS 9 alone is sufficient; Duty compliance is a distinct requirement.

Worked example

Illustrative only. A three-adviser IFA firm reviewed its ongoing service model in the run-up to the July 2024 Duty deadline. The firm segmented its 400-client book into three service tiers: full-review (annual meeting + performance review + rebalancing + tax review), light-touch (annual valuation letter + review meeting on request), and light (annual valuation letter only). Fees were adjusted accordingly. Clients previously paying 1% on £150,000 portfolios and receiving the light-touch service saw fees reduced to 0.5%. Post-Duty proposal-form response to insurers documented the segmentation exercise, the fair-value methodology, and the client-communication about the change. The firm secured renewal at a rate consistent with a well-prepared IFA firm rather than the surcharge applied to firms that had not addressed Duty compliance.