For the UK retirement industry, investing in modern technology to improve accessibility, reduce costs and improve customer outcomes should be a no-brainer.
Smartphone apps and DIY tools will be essential if holders of modest DC pots are to be able to make effective decisions affordably.
But the current regulatory uncertainty, combined with the prospect of continuing political and fiscal change, is not making it easy for advisers and providers to shape investment decisions about systems.
If you were expecting a coherent response from Government departments and agencies to the freedoms announced in Budget 2014, you will have been disappointed. The gears have not been meshing well.
The regulator has been trying to catch up. The thorny question of how to reconcile customer freedom and “caveat emptor” with the industry’s KYC, TCF and suitability obligations was addressed in the FCA’s Finalised Guidance on Retail Investment Advice, published in January, which aimed to clarify the boundaries between different categories of advice.
Much of the steerage offered by the FCA is theological rather than practical. The desired precision on regulatory boundaries has not been provided, and the judgement and perceptions of FOS, the courts and customers remain significant unknowns.
The biggest risk is that well-intentioned advisers and providers will lack confidence in helping customers unable or unwilling to pay for advice. And that reckless or badly-intentioned individuals and firms will regrettably not be on the receiving-end of suitably proportionate and timely enforcement.
The FCA’s Final Report on its Retirement Income Market Study, published in March, added to the industry’s work queue. The job list now includes wake-up packs, annuity quote comparison facilities and a pensions dashboard. And Retirement Risk Warnings, which need to be inserted at the right place in the “customer journey”.
The FCA now believes that firms should provide information about all retirement income options, not just those option(s) they offer. And it observes that current provider systems may not adequately support blended retirement income solutions.
All of this matters, because a lot of people want to exercise new freedoms. There are millions who can’t access advice either because they are not able or willing to pay.
Systems have a crucial part to play. Nirvana for the under-served would be direct-to-consumer, DIY, lower-cost help using automated tools.
But organisations are bemused about what to do. It’s technically possible to build the required automated facilities. But where’s the regulatory safe harbour? And can the additional work be slotted into the queue?
Organisations need to find a practical way forward:
Making balanced business decisions. Some firms have approached their spend on smartphone apps in the belief that “we’ve got to have one, because everybody else has got them”. A more sober consideration of the business case will be required, taking account of the extreme market uncertainty. How many people will use the app? how will we drive traffic to it? what revenues can be anticipated? if we invest in this area, what else gets squeezed out?
Taking account of available capacity and capability. The workload associated with maintaining legacy processes and systems could crowd out the new, market-driven demands. Firms should focus for the time being on identifying and nurturing critical capabilities, including scarce technical, marketing and risk management skills.
Collaborating. Many of the things that need to be done will not be delivered by individual firms acting alone. Comparative quotes and pensions dashboards will require standards, messaging infrastructure and hubs to enable data interchange and assure security and data protection.
Experimentation and learning. Few firms will get it right-first-time. A realistic view of future prospects will need to factor-in some wasted effort and unforeseen regulatory events. This points towards an experimental approach, with much piloting, testing and talking to customers.