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 practitioners 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.
