Engagement - better decisions and better outcomes

The advice/guidance boundary has, for a long time now, been a significant barrier to a wealth manager’s ability to help engage consumers and guide them towards better outcomes. Whether it is pointing clients to a lower-cost index tracking option or reducing the risk that clients run out of pension savings too soon, there is a bigger role firms can play in supporting their customers.

The regulatory developments to review this boundary could not have come too soon. The market is at an inflection point; client expectations and demands have been accelerated by the pandemic, the service gap is widening, regulation is shifting, and technology is transforming.

But 'nudge work' with clients can make a big difference. Indeed, innovation and better use of data analytics enable greater engagement and outcomes through improved personalisation. This is a crucial step to drive better decisions and better outcomes, to help savers and investors meet the challenges of the cost-of-living crisis and support the nation as we rebuild our financial resilience.

Firms can do more to help people manage their dayto-day finances and the Consumer Duty Act gives us a framework to change that. We know that client engagement is an ongoing relationship, not a one-off, and in addition to help for those seeking it – from our website, helpdesk and/or financial adviser, the development of data-based nudges helps tackle inertia.

The challenge stems from the fact that retail investors do not always invest optimally. Identified through the early stages of the Covid-19 pandemic and the surge of share trading, we noticed that many people’s first investment was in one share - typically an airline or hospitality stock hoping to benefit when the bounce came. Our concern was that with a poor first experience, these new investors might be turned off the stockmarket for good.

Encouraging these investors to diversify would clearly provide a better long-term solution for them, and this was the basis for our programme.

This data-driven approach assesses client portfolios on various measures to allow identification of clients who need more guidance. We then target personalised communications to nudge people in the right direction, whether this be to diversify, rebalance, or hold more or less cash. Further encouragement is through our 'Learn' hub and with investing education across account journeys.

The plan is to do more along these lines: direct mail, push notifications on the app. We will look to link our findings and learnings into other initiatives such as our developing augmented services. As an aside, the metrics also act as proof points for measuring client outcomes.

From over 690,000 clients engaged in the programme, over 38,000 of them have improved their portfolios. From this, we can see that our targeted approach boosts engagement, but greater personalisation will improve these results and is needed to drive more action. For example:

• Suggested actions on how clients can improve their investment position.

• Personalised investment solutions based on the clients’ holdings.

• Suggested actions on improving wider financial planning.

Data analysis can also help to identify opportunities to deliver a better outcome for clients through client journeys. For example, looking at clients applying for pension drawdown:

• Seven in 10 were only taking tax-free cash.

• Two in three were taking full drawdown.

The flexibility of partial drawdown provides many tax benefits, however the take-up was low. Our research found that people were overwhelmed with information and choices, meaning they lost focus on the important and relevant parts, and that the retirement pathways added another decision point.

The response was to redesign the journey, build a new digital application, remove income options to cut the cognitive load and add positive friction to the places that matter most.

The result was a doubling of the number of clients taking partial drawdown and a 75% reduction in the number of applications which required querying.

Further improvements to engagement and outcomes can be sought in other ways:

• Households need to consider their finances in the round; hence, the development of 'five to thrive'control your debt, protect your family, save for a rainy day, plan for later life and invest to make more of your money. We use this approach in everything from our savings and resilience barometer to the development of augmented services.

• Products and services should be user-led but expert-informed: We use knowledge from our advisory service and insight gained from deep client relationships to inform the tools and services that we develop for our broader client base, which are consumer tested as we develop them.

• Communication should be clear and transparent, with the recognition that less can mean more; client research shows that narrowing down options is often a driver of better client decision-making.

• Diverse customer needs should be considered through product and service design. Wealth management clients have a diverse set of needs; from hobbyists and older people wanting to support their grandchildren to workplace pensions clients. These considerations, including support for vulnerable customers, should be considered at inception.

• The benefits of a coherent approach is underpinned by the Consumer Duty Act - A principles-based approach needs a common understanding of the critical factors in the four Consumer Duty outcomes: communications, products and services, customer service and price and value.

The data generated from tracking consumer outcomes, under the Consumer Duty should be used to drive supervision and enforcement.

There is a once-in-a-generation chance to align regulatory reform with fast-moving technological innovation to really deliver for retail investors who have a greater need to take personal responsibility for their financial future. Plus, a big opportunity to pull together regulatory agendas in the retail investment space, putting consumers at the heart of it.

Firms can do more to help people manage their dayto-day finances, but innovation is being held back by legacy regulation. The Consumer Duty gives us a framework to change that. Any change needs to realise the future opportunities we have with tech and data analytics.