I am interested by Guidance Technology, it is at the core of http://www.pensionplaypen.com.
As we use it, Guidance Technology narrows down options available to people to a shortlist that is clearly differentiated.
For an employer to choose the right workplace pension, we list up to 25 options in a clear league table, each provider’s league position depending on an employer’s circumstances and preferences.
Employers make choices, not because they are told what is best, but because it becomes clear to them what is the best course of action for them at that time.
Guidance Technology applied to individual decision making at retirement
Let’s suppose it applied to the decisions to be taken by someone at retirement, the options to someone might appear ; this of course is a case study and not meant as advice to anybody I know!
- Cash out the pension pot and pay off personal debt, keep working
- Economise, keep the debt and keep working
- Economise,keep the debt, keep working and keep saving
- Cash out, emigrate and ride your luck.
Where digital guidance might help would be in helping work out what the different options would mean in terms of cashflow (income) and capital (cash in the bank).
It might also help work out which route involved paying least tax (particularly helpful with the timing of decisions).
Guidance Technology might also help in suggesting what might happen to investment income, what state benefits might look like in years to come, it might even help in working out what to put by for later life expenses or whether to insure against the calamity of long term care expenses.
Does it work – do we have evidence elsewhere?
I am struck, when I talk with accountants, how most of their scenario planning is done on PCs, tablets and even i-phones. Go to an Accountancy Conference and every stand is advertising an app to deliver instant answers to financial questions.
These apps pre-suppose the ready availability of good data (it is the stock in trade of an accountant) and the ability of an accountant to follow instructions to get to the final screen.
Many of these apps are marketed as games, with rewards along by way of icons and bells to signify milestones achieved. Many apps have help buttons which introduce answers given by previous users to frequently asked questions. The concepts of gamification and of social media are integrated into the journey.
I have seen demonstrations of the use of similar solutions to help people take individual decisions. They come from abroad. I was recently talking to an Italian pension administrator who provides these apps to 3.5m European customers.
Guidance Technology need not be difficult, it can be fun and the journey can and should be rewarding.
Making it fun
To return to my retiree,Technical Guidance could do more than list the options, it could order the options according to the importance that individual placed on “not paying tax”, “trusting investments”, “capacity to work”, “willingness to work” and “current and likely future health”.
In my example, there are a mixture of quantitative and behavioural variables that need to be input into the model for a league table of options to emerge and it’s vital that any model can be revisited to see the impact of changing them in absolute and relative terms.
The other feature I see in much of the software appearing in accountancy packages, is a degree of humour and homeliness. Instead of spreadsheets, these applications present the variables in terms which resonate with comfortable scenarios, one accountancy package “Quickbooks” even sound like “Cookbooks”, making me smile and titter!
The front ends of these packages are visually attractive and navigation is thought through to make next steps intuitive and therefore easy. Gamification is the concept of making something that looks hard , seem easy. Pension PlayPen gamifies its subject.
What’s stopping us?
It strikes me that financial advisers are not going to want to embrace technical guidance anytime soon. It looks about as attractive to 21st century advisers as the threshing machine looked to 19th century farm labourers.
But this is the point. The demands to feed the empire made on 19th century farmers, demanded the application of new technology to increase overall productivity. The increase of productivity per labourer ultimately fed through to greater prosperity for the farm and fed urbanisation which moved us to where we are today. There are many who pine for a rural idyll of a pre-agrarian revolution, they should be reminded of Hobbes’ epithet for such a life “nasty brutish and short”.
The demands on our welfare state demand that we can no longer hand out benefits, no more can we hand out advice. People need to adapt and adopt the new technologies if they are to make the most of the new freedoms that are coming their way.
Leadership is needed to bring about change.
For most people, the kind of advice that people with wealth can purchase, is beyond their means or simply not something they want to pay for. Whether it is our of necessity or parsimony, people are not going to pay for a financial plan or pay the commission to implement it.
For these people, Guidance Technology is probably the answer. With 65% of the population now owning a smartphone or tablet, the hardware is in place. For everyday people, the software is not. The barriers to getting that guidance software to the mass market are primarily regulatory. But regulators are being held back from allowing guidance technology to be put in place, beset by the legacy of mis-selling over the past 30 years.
What is needed is leadership that can bring together the technology , the products and the advice and make it readily available to everyone. So people can be empowered to make financial decisions for themselves.
I am beginning to see signs within Government of such leadership and will be writing more on this subject in the next few weeks.