A fair value assessment is how a firm evidences the price and value outcome of the FCA's Consumer Duty. Under PRIN 2A, a firm must ensure its products and services provide fair value, meaning the price a consumer pays is reasonable relative to the benefits they receive. The assessment weighs the nature and benefits of the product, the costs of providing it, the price, any limitations, and comparable products, and concludes whether the product offers fair value. Manufacturers assess it, and distributors assess the value their distribution adds.
The Consumer Duty asks firms to deliver good outcomes for retail customers, and the price and value outcome is the one with the sharpest edge: a firm has to be able to show that what a customer pays is reasonable for what they get. The fair value assessment is the evidence. This guide covers what it is, what it weighs, who has to do it, and how it is kept current.
What the fair value assessment is
The Consumer Duty sits in the FCA Handbook at PRIN 2A. The price and value outcome, PRIN 2A.4, requires firms to ensure that the price a retail customer pays for a product or service is reasonable relative to the benefits. Fair value does not mean cheapest; it means a reasonable relationship between price and benefit. The fair value assessment is the documented analysis that supports that conclusion.
What it must weigh
- Nature and benefits of the product or service, including its quality and the benefits a customer can expect.
- Costs the firm incurs to provide it.
- Price the customer pays, including all fees and charges over the life of the product.
- Limitations on the product and any characteristics of vulnerable customers in the target market.
- Comparable products in the market, where relevant.
The assessment combines these into a conclusion on whether the product provides fair value, and identifies any group of customers for whom it does not.
Manufacturers and distributors
The obligation is shared. A manufacturer, the firm that creates the product, assesses fair value and shares the information distributors need. A distributor assesses the value its own distribution arrangements add or remove, including its remuneration, so that distribution does not undermine the fair value the manufacturer established. Both have to act on an assessment that shows a product does not offer fair value.
How to conduct one
Step 1: Define the product and target market
Set out the product, its benefits, and the target market, including any vulnerable customers.
Step 2: Identify costs and price
Identify the total price the customer pays, including all fees over the product's life, and the firm's costs.
Step 3: Weigh price against benefits
Assess whether the price is reasonable relative to the benefits, considering limitations and comparable products.
Step 4: Conclude and identify any unfair-value group
Reach a fair value conclusion and identify any customer group for whom value is not fair.
Step 5: Act, document, and review
Act where value is not fair, document the assessment, and review it regularly and on material change. The Consumer Duty also requires firms to monitor outcomes and report to the board.
Where it goes wrong
- Price only. The assessment compares price to competitors without weighing benefits, costs, and limitations.
- Distribution ignored. A manufacturer's fair value is undone by distributor remuneration that no one assessed.
- No action. An assessment finds poor value but nothing changes.
The fair value assessment is where the Consumer Duty becomes concrete. For the wider regime, see the FCA Consumer Duty compliance guide and the FCA Consumer Duty glossary.
Primary sources
- FCA Handbook PRIN 2A (Consumer Duty): The Consumer Duty, including the price and value outcome (PRIN 2A.4) and the fair value assessment.