“The blunt truth about pensions is that many people don’t know enough to make the decisions that would give them the retirement they want. Poor information will mean poor outcomes for too many people.
“There is a serious gap in the provision of advice and guidance around pensions, and that gap leads to real financial harm.
“Lacking an accurate understanding of what they will need for the retirement they want means some people will not save enough, and end up disappointed.
“Not fully understanding their options on the way they use their pension savings in retirement means that some people will not make the best use of that money.”
The words of Scott Corfe of the Social Market Foundation whose “A guiding Hand” is yet another think-tank report that tells us we’re not doing pensions very well.
It’s a timely report as yesterday saw the first public sighting of the FCA’s “Guided Sales Model”.
Thanks to Money Marketing for sharing this almost legible graphic which can be downloaded for closer scrutiny. What it tells us that the FCA are listening and recognising what Andy Curran of Phoenix concluded after commissioning the SMF report
“Major initiatives over the past decade have encouraged pension savings – but saving more is just one factor. We must now help people feel more comfortable in making financial decisions throughout their life to help them get better outcomes. It is time to close the guidance gap”
Saving more is just one factor. As I said to the EMPLSA earlier this week, people are worried about what becomes of their savings, whether they are retirement ready and what is the most efficient way of topping up their savings.
This is acknowledged in the FCA’s Guided Sales Model which focuses on the supply of non-advised service,
So the FCA hopes that more firms will look to provide guidance on “large scale liabilities” because they won’t have to go through the advisory process. This may sound an unravelling of 35 years of regulatory process but it is bang in line with what Andy Curran is calling for.
So how would this work for the consumer?
To use the correct sales word “prospecting”, how do you create a sales funnel so that you are talking to your “large scale liability”- aka “ordinary people who don’t buy advice or go to Pension Wise”? It’s the right question – the market will find answers.
It is clear you cannot deal with lots of questions from lots of people through a conventional contact centre. No one expects this anymore, they want an application that makes sense of most of their confusion and gives them access to someone for answers to those questions that are blocking them taking a decision. In sales , this is called “sales support”.
The process above sounds brutal, but it needn’t be. Some people just aren’t ready to take a decision or should be focussing on other things. Telling people they are barking up the wrong tree is tough – but machines can do it very well.
Anyone who has been in sales knows that choice is both attractive and an inhibitor, too little choice and people walk away, too much choice and people can’t decide. Getting short-lists of “investment solutions” – (funds) is something machines do well, if they have some data input to work on.
We see this stage of the process in almost every online purchase we make. We get an email telling us what we bought, what it cost and often – “what it’s for”. Validating the sale used to be known as “sealing the deal”.
This isn’t part of the sales process, it is more a “next steps” approach. And it’s interesting that the FCA see it happening just after an investment decision has been made. It’s a “next steps to becoming self-confidant about financial decision making conversation.
This isn’t anything to do with the sales process, but refers (I think) to what a default guided sale would point to. I am unclear what an HRI is – “health related investment?” – but anyway the point of inclusion is presumably to limit the scope and ambition of such a service to channelling people down the obvious pathways – which is a nice way of saying “you can have it any colour so long as it’s red!”. Keep it simple stupid (KISS).
The commercial model
The FCA (in the adjacent green box) refer to this box as “pricing”, which presumably means that the complexity of the product determines the price people pay for the guidance.
The key question is “who is picking up the tab”. If the FCA want this guidance to be independent of the provider of the “solution”, the service has to be paid for by the member (perhaps through adviser charging) or by a sponsor (maybe an employee benefit). If it is provided by the Product Provider (the entity benefiting from the decision), then the cost is in the product by means of a unit deduction (perhaps spread over time).
A covert consultation?
It seems the FCA has been consulting with “the industry” about this Guided Sales Model for some time and Money Marketing tell us we can expect a formal consultation this quarter.
It can’t come soon enough for millions of people not being properly served by advice they can’t afford and guidance that doesn’t get them to take decisions
If ‘available income/capital’ means what they *could* get if they asked, such as unclaimed benefits, then that would be a great advance! I suspect that it doesn’t. I have a feeling that the ‘Guided Sales’ label expresses exactly the effect – guiding towards sales. It would be very difficult to create a model which provides accurate objective guidance and also says “choose us”. I’m sure that such balance will quickly, if subtly, tilt towards “choose us”.
I agree with your assertion that it will be very difficult to create a model which provides accurate objective guidance and also says “choose us”. The FCA are completely unrealistic about the commercial viability of organisations who try to create this model.
In your commentary, you write….. “How do you create a sales funnel so that you are talking to your “large scale liability”- aka “ordinary people who don’t buy advice or go to Pension Wise”? It’s the right question – the market will find answers.”
But surely the market has already found the answers, the market has shown that advice firms will not be able to commercially offer such services because they do not want to do it. Those who have tried a type of “hybrid” model of machine non-advice with human intervention have generally made huge losses.
The FCA is basically saying to “the market” that people need this service so find a way to do it. But in reality, those who currently give actual advice which requires a suitability report are absolutely right to worry about the potential liabilities and claims they face when someone complains about the non-advice not given in future. There is a long history of the FOS making rulings using hindsight rather than the rules in place at the time.
And the deduction of units to spread the cost of an up front non-advice fee is basically commission Henry. I thought that you disagreed with commission?
So I am afraid that the FCA really is stating the obvious and all the flow charts and decision trees in the world won’t make something that is not commercially viable happen. We await better artificial intelligence and better mechanised solutions before such ideas are likely to lead to actual outcomes for the consumer.
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