Having been responsible for more proposition launches than I care to remember during my time in financial services, I’ve come to recognise a familiar rhythm in how new offerings are conceived, built and refined. The journey from idea to implementation is rarely linear.
A common feature is the demanding nature of the build phase, where teams move from discussion about an identified customer need to a more granular focus on issues like service features, customer journeys, technology and how it will interact with our regulatory landscape.
Targeted support is now moving into this thorny second phase and the outcome of the recent FCA consultation will play a critical role in determining what the industry builds and whether it will offer a service that is fit for purpose.
Removing complexity and feelings of anxiety
Taking a step back, targeted support has cleared one of the most critical early hurdles: stakeholder buy-in. Government, regulators and consumer groups are aligned on the customer need.
The Standard Life Centre for the Future of Retirement has done particularly insightful work in this space, focused on the potential of the service to help with retirement income decisions.
One of the issues surfaced by the consultation is over whether targeted support delivers better ‘outcomes’ or ‘positions’ for people
Their study found that those approaching retirement feel overwhelmed by the complexity of retirement income decisions and would welcome a service that narrows down their options and reduces anxiety about the choices faced.
Defining the benefits
Precision regarding the nature of the offer is essential and language matters. One of the issues surfaced by the consultation is over whether targeted support delivers better ‘outcomes’ or ‘positions’ for people.
Our view is that ‘positions’ is a more accurate description of both what the service will provide and what customers expect. The Centre’s study found that people clearly understood the service would not constitute advice in the traditional sense.
They saw the main benefit as empowering them to navigate options that might be in their interests, with ultimate responsibility remaining with the individual.
While this may sound like semantics, clarity here is important as the industry will be building a service that under the current definition constitutes financial advice. The reality is that it will fall far short of advice, with options presented to customers that are based on far fewer data points.
Accurate data is only part of the equation. Providers also need a consensus on how to interpret it
The government has rightly recognised the tension here with its review of the advice definition. By creating a new form of regulated activity, it will both allow providers to clearly explain the benefits of targeted support and create a pathway to regulated advice for those who want something tailored to their circumstances.
The data dilemma
This brings us to the issue of data. What information will suggestions be based on? How much data can be collected without making it advice?
While the government has signalled its intent to consolidate the workplace DC market, our pensions system remains highly fragmented. Most providers only see a partial view of an individual’s pension provision. With pensions dashboards edging closer to reality, it would make sense for providers to draw on this fuller picture.
Under current legislation, financial advisers can access dashboard data with customer consent. Extending this delegated access to pension providers would be a logical step and could significantly improve customer segmentation and the nature of the service offered.
Interpretation, assumptions and onward interactions
Accurate data is only part of the equation. Providers also need a consensus on how to interpret it and then put forward potential courses of action. One of the key concerns raised in the Centre’s study was the potential for different providers to offer conflicting suggestions.
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When it comes to retirement income decisions, for example, how should providers think about the role of guaranteed versus discretionary income?
A consistent set of principles is needed to address questions like whether all essential living costs need to be met via guaranteed income, should this income be inflation linked and what level of investment risk an individual can afford to take on their remaining savings?
Those working with an adviser can address these questions in a bespoke way, but in a targeted support scenario a degree of industry continuity and careful customer segmentation is needed, so that end users aren’t left scratching their heads at the variation in suggestions offered.
The challenge of creating a seamless customer journey is particularly significant when you consider the different range of organisations people are likely to interact with.
For many people, the journey will involve conversations with MoneyHelper or Pension Wise, alongside interactions with their pension providers and access to targeted support. For some, this may then lead to a prompt to seek advice from a financial adviser or other specialist services.
Targeted support has the potential to reshape how millions of people engage with their savings
To be effective, the handover between these different parties needs to be seamless, particularly as targeted support will also interact with newer forms of help such as default decumulation options and simplified advice.
From build to launch
In my role, I’m accountable for the proposition we offer to the majority of our 12 million customers and see first-hand how people are looking for information and support we’re currently unable to provide.
Targeted support has the potential to reshape how millions of people engage with their savings and the potential when it comes to pensions is huge. But its success will depend on how well providers, MaPS, trustees and the advice industry collectively navigate the regulatory nuances, data complexities and customer expectations.
In short, the hard yards start now.
Colin Williams is CEO of pensions & savings at Standard Life
