"How do advice firms build credible evidence that they are committed to providing a value-for-money service to clients?"
The end of April saw the passing of a key milestone in Consumer Duty implementation. Manufacturers (regulated firms that create, design or manage a product or service), should by now have completed value for money assessments for all existing open products and services and shared them with distributors (those that offer, sell, recommend or advise on a product or service).
With few firms announcing the completion of their assessments, it’s difficult to judge how well the industry met the deadline. However, following a review of implementation plans the FCA suggested in a Dear CEO letter in February, that some firms were behind in their preparations. It warned: “This brings a risk that they may not be ready in time, or that they may struggle to embed the Duty effectively throughout their business.”
As part of the Consumer Duty assessment, advice firms not only need to demonstrate that the products and services they recommend offer fair value, but also that the overall provision of advice delivers value for money. Given the current economic backdrop, cost of living crisis and ongoing market volatility, clients too are likely to be more concerned about the value they are receiving and the security of their finances over the long term.
The Regulator is clear that value is about more than just price – something cheap but unsuitable does not deliver good value. Instead, it says you need to ensure that “there is a reasonable relationship between the price paid for a product or service and the overall benefit a consumer receives from it.”
One difficulty in demonstrating that you are delivering fair value is that the tangible outcomes of long-term financial planning are often some way in the future. In the shorter-term, perceived value will be based on aspects of your service which can be difficult to measure. Often, it’s more about the trusted relationships you develop due to the quality of your communication and customer service and how well the client understands and engages with their financial plan, rather than the specific products and services you recommend. A 2019 study by Vanguard which analysed what clients value most from financial advice, found trust in the adviser was the most important factor, followed by having a personal connection with the adviser and being on track to meet goals, with feeling reassured in down markets also featuring highly.
So how do advice firms build credible evidence that they are committed to providing a value-for-money service to clients? Turning to technology goes a long way to answering this question.
Effective use of technology can help you deliver and demonstrate value for money, to your clients as well as the Regulator. Here are three ways technology can support your business, giving you more time to focus on the more emotional factors within advice which clients deem most important:
1. Improving efficiency
Although cheapest isn’t always best, part of delivering value for money is ensuring that the cost of your service is not inflated by inefficiencies. We all know that too often advisers are forced to rekey data or use manual workarounds as they navigate the advice journey for clients. The lang cat’s Fragmented World paper last year suggested that firms could be up to 75% more efficient if their systems spoke to one another.
Effective use of technology can translate into cost savings that will ultimately benefit the end client. From supporting faster fact finds, automatically storing information and creating reports at the touch of a button, to integrating seamlessly with other tools to avoid rekeying information, using technology in the advice process can reduce admin tasks and cut risk as well as costs. In doing so, it leaves the human advisers with more time to focus on the customer relationship.
2. Gaining a deeper understanding of your clients
At the heart of Consumer Duty's fair value requirement, is ensuring your service and your recommendations are suitable for the individual client. Knowing your customer is key to getting this right, but the rules go deeper than previous legislation. You need to segment your clients in detail and tailor your recommendations, service and communications to their needs and preferences.
Your practice management system and the data you hold on your clients should help you to segment them more easily, not only allowing you to record their preferences, but also provide an insight into how they behave and how best to communicate with them. For instance, clients who are worried by periods of volatility may benefit from receiving communications that reassure them during those times and answer any concerns they might have about their finances. It can also support conversations around vulnerability and ensure that you record relevant information so you can adapt your service and recommendations as required.
3. Helping clients visualise their financial future
Technology can also help demonstrate the value of advice by bringing to life the future benefits of financial advice in the present day. Using cashflow planning tools offers a visually engaging way to deliver complex financial forecasts within easy-to-understand scenarios. This supports the client’s understanding of the financial plan and evidences that the products and services you are recommending are suitable to meet their needs. Regularly running different cashflow modelling scenarios will also provide reassurance over time that they remain on track to achieve their long-term objectives.
Using a client portal can help improve the flow of information, offering a convenient way for clients to interact with their finances and better understand how you are delivering value. The information available through the portal can be tailored to meet the client’s preferences and you can also draw data from external sources, for instance via Open Banking, to further illuminate the client’s financial information and at the same time better inform your recommendations.
We all know that good financial advice provides enormous value to those who take it. Using the right technology (and recording that you’ve implemented it) can help add even greater value to the advice journey, not just to satisfy the Regulator, but also for the long-term benefit of clients and the good of the sector as a whole.
