2023 may well be the year of the consumer for wealth management. The new Consumer Duty regulations are due to hit in the summer, whilst there is also the roll out of the Pensions Dashboard. The FCA have also challenged the industry to get more savers investing, whilst there appears to be increased recognition of the limitations of the advice guidance boundary.
This is all coming at a time of large scale economic upheaval both globally and in the UK. Investors, and maybe more importantly, potential investors, will be feeling the uncertainty more than they have done for some years. Some will have been stung directly by the implosion of crypto, whilst many more people will have been innocent bystanders seeing the consequences of those high risk investments. Some within both groups will have concluded that all investing is a gamble, where all capital is at risk, and felt content to remain or move to cash holdings.
Whilst a lot of focus this year will rightly go on existing customers, we should not forget that those not yet engaged with investments also need to be considered. It’s important that these myths are challenged, and the wealth management industry needs to do more to engage with customers. As an industry we should all be confident to extoll the benefits of financial advice and regulated investment products. There also needs to be a recognition that there are barriers to reaching a wider audience, the language used is still difficult to comprehend, the journeys being designed remain too complex, and whilst there has been progress made, there is still a lot of room for improvement when we think about interaction with the end consumer. Those closest to the customer, usually advisers, are not heard enough, and the ways and means those interactions take place are often self-serving to the investment provider and their needs, rather than to the customer.
Which leads us on to Consumer Duty, and the need for investment providers to consider these questions when they are looking at how best to deliver more effective product, services and communications to their customers. It will be natural for the focus to be on the July deadline, but Consumer Duty will demand a longer term view to be considered alongside the immediate priorities. There is a big opportunity to engage with a new generation of investors, and financial advisers looking to take advantage of opportunities technology opens up, such as hyper-personalisation that can be accessed through micro-services and a more focussed view on data.
Consumer Duty opens up challenges on multiple fronts, whether that is within governance, culture or product lifecycle management. One of those challenges will be data. As wealth management follows other industries to focus on data. Providers will need to become more adept at using that data effectively. A faster pace of innovation is rapidly approaching, where customers will have far more power to define the data that is important to them. Customer communication has slowly crept forward from a paper template to a digital template whilst keeping the content roughly the same, but those communications over the next few years will become far more personalised. Communications becoming a more two-way conversation which is based on what providers know about who the customer is, what they want to achieve and what their risk appetite might be. It should become far easier for providers to identify who and when customers would benefit from some level of interaction, whether that help is assistance, or being pointed to a level of advice. Moreover, this would also give a better view of potential vulnerabilities, or where a different level of service, or a different product would be of value. We will have to see the relative success and take up rate for new initiatives like Pensions Dashboard, but we may start to see a shifting demand for more accessible data that gives customers a more holistic, multi-channel service.
The regulations will also need to move with these new demands from both the consumers and from those providers that want to adapt a more tailored approach, but fear straying close to the advice boundary. It seems that Consumer Duty has brought these considerations to the fore, and the potential for more simplified advice solutions and for personalised approaches outside of advice should both be welcomed by the consumer and those who would like to see the advice gap reducing.
We may be heading into a challenging environment but a shift of focus to the consumer can only be a good thing particularly if;
- Customers are better educated about the benefits of financial advice and regulated investment products
- Investment providers consider the long-term effects of the Consumer Duty regulations and use data to provide more informed choices to investors
- More personalised and simplified solutions are offered to customers in addition to a holistic, multi-channel service