 By Tom Murray, Head of Product Strategy, Exaxe, www.exaxe.com
Back in the seventies, when I was young, a programme called Tomorrows World aired every week on the BBC and showed us what life would be like in the 21st century. New technologies were going to change how we did everything and deliver the human race a life full of ease and plenty.
The future hasn’t actually turned out as it was forecast. The Tomorrow’s World presenters were certain that most of our time would be leisure time by now and that minimal work would be needed to sustain luxury lifestyles.
Nevertheless few people would deny that technology has dramatically changed how we live our lives and the pace of that change is getting faster. A mere twenty years ago, mobile phones were seen as sufficiently elitist to be the subject of mockery in programmes such as Only Fools and Horses. Now not only does everyone have one for communication, but the range of things they use it for has grown exponentially. Many people are prepared to use their phones for shopping, banking and other everyday activities rather than just for point-to-point communication.
Yet it is a mistake to think that technology is the solution to every problem that arises. Take the issue of annuity purchases, for example. There is currently a lot of discussion around the fact that buying annuities is a life-changing moment, a once-and-for-all irrevocable decision and yet many people lack knowledge when they actually make the purchase. Few people understand how at-retirement products work, primarily because they generally only make one purchase in their lifetime, yet very few get proper advice from a trained professional at this crucial moment.
This is for a number of reasons. Firstly, many people just accept whatever annuity offer comes from their pension provider. Secondly, the Retail Distribution Review (RDR) has banned commission, meaning that anyone who is buying an annuity is faced with a costly up-front fee charge which is off putting.
Finally, a third choice has emerged to plug the gap with execution-only websites proliferating and providing information rather than advice to the people who purchase. Technology has stepped in to plug the gap that the IFAs have left in the advice market.
These websites are tempting to those who assume, through lack of knowledge, that purchasing an at-retirement product is a straightforward process. The big point about these sites is that there are no up-front fees, as non-advised sales are allowed to take commission. This gives the illusion that using these websites is a better value option than consulting an IFA. This is wholly misleading, as frequently the commission taken is higher than a fee for advice would have been, leaving the consumer in the position of having paid more to make the decision themselves than they would have paid if they had consulted a qualified adviser.
This technological solution is being driven by the so-called ‘advice gap’, which has arisen as a result of the RDR changes to the marketplace. It is being clutched at as a solution by those who should know better. Politicians and industry experts who supported the RDR are now determined that their solution to this problem will work and will prevent a huge amount of incorrect annuity purchases being made by consumers who have been pushed away from the advice market.
Proper advice for individuals means giving them individual advice – not some averaging of what people in their position usually get, which is the best that technology can provide. When we try to get technology to do this kind of subtle personalisation, it generally fails. See how inappropriate are most of the items pushed at you by Amazon’s “Customers who bought this item, also bought” offerings.
The fear that many consumers will buy the wrong retirement product is to the fore of the push for an examination of these websites by the FCA. This is an urgent requirement, as too many people are expecting technology to fill the advice gap and the sad truth is that technology is unable to solve this problem.
What’s needed for the sale of at-retirement products is human interaction, supported by high-tech solutions. This will allow the customer to benefit from the experience and the advice that can be given by a qualified professional that can assess far better than a machine what the needs of the customer are. Then the adviser can access the technical solutions that will benefit the customer and help them to make a choice from that range rather than leave the consumer to struggle to get there themselves. It means that customers are given a proper choice and technology can be used to help them understand the options instead of assuming that people can fully educate themselves about all the implications of their at-retirement decisions in the few months before they actually retire.
Websites, tablet and smartphone apps all have a part to play in giving people control of their finances and helping them to make the right decision, not in replacing a professional adviser’s contribution but in augmenting it to give a better solution to the client. Like the Tomorrow’s World presenters, those who believe technology will change things are generally right, but they are rarely correct in identifying just how that change will present.
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