The FCA’s Consumer Duty comes into effect at the end of July, and advisers will be considering what adjustments they need to make to their businesses to drive good outcomes for consumers.
While many will use this as an opportunity to re-examine the design and nature of the services they offer, some other advisers believe that the Consumer Duty is mainly a reinforcement of current best practice. Either way, advisers will need evidence to be able to demonstrate that they are delivering against the new rules.
Research from Aegon shows the extent to which advisers expect the Consumer Duty to impact retirement advice. The three areas advisers expect to change most are:
• the way they communicate with clients (34%)
• the way they assess the value of advice (33%)
• the way they segment their client base and service offerings (28%)
Communication
The most common way that advisers see the Consumer Duty changing their offering is how they communicate with clients, a key focal point for advisers given the Consumer Understanding outcome demands consumers receive communications they can understand.
The research also found advised clients already place a high importance on communication: 93% agree that fully understanding retirement advice is important. Encouragingly, 4 in 5 (81%) advised clients say they have at least a general understanding of how on track they are with their financial objectives, suggesting that advisers are largely delivering what clients want and expect, though with some room for improvement.
Assessing the value of advice
Firms also need to ensure their services offer good outcomes in terms of price and value. Currently, only a quarter (26%) quantify the value of advice to a great extent and 24% say they give it little or no attention. Surprisingly, only a third of advisers (33%) said it’s likely that they’ll make changes here.
The findings show that clients and advisers see value differently: clients see the performance of assets as the most important component of retirement advice. Advisers put almost equal emphasis on four aspects - financial wellbeing (43%), tax savings (42%), portfolio performance (42%) and achievement of specific objectives (41%). While emphasis is being put on investment performance, they’re also focussing on helping their clients understand the many areas where they add value beyond a narrow focus on investment returns.
Segmentation
Just over half (51%) of advisers currently segment their client base, and another 9% plan to start doing so in the next 12 months. Most advisers said they already, or will, segment on the basis of complexity of need (54%) which is in line with the Consumer Duty’s emphasis on putting the client’s needs first.
Many advisers segment clients by the value of investible assets (or other measures of net worth) (53%), but this may not always consider the intricacies of what clients, even those with similar levels of wealth, may need, be it level or type of support.
Advisers don’t have to segment their service, but they must be confident that the service they’re offering is appropriate for what clients in the target market for that service need, and segmentation can be a beneficial way to do this. The complexity of retirement advice makes it particularly vital that advisers can demonstrate a clear link between client, their needs and the services offered.
Steven Cameron, Pensions Director at Aegon, comments:b“The FCA’s Consumer Duty will have a significant impact on the retirement advice market, not necessarily drastically changing the advice itself, but certainly the framework and evidence that surrounds it.
“Advisers should be considering all areas of potential change in their business and services that could help deliver good outcomes for their clients. Where confident they’re already delivering as the FCA would expect, it is good practice to document how they’ve come to that conclusion to avoid being viewed by the FCA as overconfident or complacent.
“The Consumer Duty seeks to put the client first and demands that consumers receive communications they can understand, services that meet their needs and which offer fair value. These considerations are mirrored in the key areas advisers expect to make change in their retirement advice offering.
“Ahead of the end of July deadline, it’s important that advisers examine where changes should be made not only to demonstrate to the regulator that expectations are being met, but to ensure that clients receive retirement advice that best suits them and the complexity of their needs.”
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