'Where can firms provide better service in a consumer duty world?'

After a 36-year career in financial services, I agree that I perhaps have the knowledge to do it myself, but the time and interest is harder to find. 

I have also seen too often, among my friends as well as in my work, what happens in couples in which one person has some financial expertise.

The juggling act of two careers, a family and a home means that if one half of the couple is financially confident, they inevitably take the reins of the money management, while the other looks after their own share of the practical and administrative tasks. Simple division of labour. 

But if the person who has managed the finances dies first, the other is often left in a mess, no matter how carefully their partner has prepared for the eventuality. And though an adviser can help, even finding one can feel overwhelming for someone dealing with both grief and the other practicalities of a bereavement. 

The core of consumer duty is that you need to know your customers and provide a service that is appropriate for them. And that is as much an opportunity as it is a threat. 

Building a relationship with a financial adviser earlier means the knowledge does not all reside with one person – something that helps me feel more comfortable when it comes to my own family’s future.

Finally, I do not flatter myself that my circumstances are unique. Though I am experienced in understanding risk, an adviser who is used to working with clients like me – business owners with families to plan for – might see things I do not.

Consumer duty future

As a firm, we are passionate about the value of good advice, and now we are working with an independent firm to put our money where our mouth is by making it available to all our team members.

I mention this not to pat myself on the back about our employment practices, but because I think the service is a good example of how savvy advice firms can slice off a market need and deliver it using technology in a simpler way in a consumer duty world. 

The core of consumer duty is that you need to know your customers and provide a service that is appropriate for them. And that is as much an opportunity as it is a threat. 

The threat: if you do not look after your customers, you will have to keep answering the same questions from the FCA. Why does everyone get the same service? Why are they all charged the same?

One area that looks ripe for innovation is decumulation.

Either you are doing a better job of segmentation than any other company on earth – taking on only the one specific kind of client for whom this proposition works perfectly – or you are delivering a model that suits you rather than the customer. 

The opportunity: take a look at the market for advice, identify a need that no one is meeting – or meeting well, in a way that will satisfy the regulator – and carve out a niche for yourself. 

The proposition we are offering to our team has clear parameters. Every team member receives access to a financial health check, delivered by a quality advice firm using our technology. 

This is not 360-degree advice, but it hits the key notes for the people in our business who are typically younger financial and tech professionals: protection levels, risk levels, pension contributions, mortgages, emergency cash and so on. Information is collected digitally and then discussed with an adviser on a video call. 

Team members do not receive investment recommendations, but if they feel they need them at the end of the conversation they can opt to work with the adviser directly. The service is delivered at an affordable cost to us, and creates a revenue stream for the provider, as well as a gateway to new client relationships. We are paying a fixed annual fee per person.

Decumulation opportunities

Where else in the market might we identify opportunities for firms to provide their services in new ways? One area that looks ripe for innovation is decumulation – as highlighted by the FCA’s review of retirement income advice, launched in January.

The regulator notes the significant shift since pension freedoms in 2015 towards consumers remaining invested and drawing down from their portfolios, resulting in more complex advice requirements.

The question of fees for this group is a knotty one. If a client is drawing down, say, 4 per cent a year, and the adviser is taking 1 per cent a year that’s 25 per cent of their income, potentially on a declining pot.

Cash flow planning can be hugely beneficial in helping clients to cover their current expenses while looking after the future.

Complicating the picture is the fact that higher interest rates have improved the case for annuities – but for firms there is a clear incentive to keep clients invested. The potential for conflicts of interest in this area may increase, depending on the path of interest rates. 

For clients with simple, moderately sized portfolios, who are early in retirement and in set-and-forget mode, is there an opportunity to provide a lower-touch, lower-cost service? Or to rethink the charging model?

Of course, there are knotty problems to navigate with clients in decumulation: estate planning, bereavement, the cost of care. Cash flow planning can be hugely beneficial in helping clients to cover their current expenses while looking after the future.

Many firms now charge for these separately, delivering significant value and creating a profitable new service line rather than bundled into the annual fee.

I have no easy answers. But with the regulator looking at this area, and signalling that the results will be viewed as an indicator of how consumer duty is being implemented, there are surely rewards to be had for firms that come up with solutions. 

Ben Goss is chief executive of Dynamic Planner