The purpose of the UK’s latest regulatory update goes beyond additional reporting and addresses the value created by wealth management and insurance businesses. It aims to set a higher standard of care and deliver better consumer outcomes throughout the customer journey. The overarching principles set out to change how products and services are evaluated, priced, explained and supported, and it should transform the relationships within wealth management value chains.
The degree of Consumer Duty readiness was certainly varied within the industry when the deadline was approaching, and many financial institutions certainly needed to rethink how they would approach their business going forwards.
A KPMG article in a recent PIMFA whitepaper devoted to Consumer Duty highlights that the key to assessing value creation, pricing strategies, and customer support lies in efficiently performing data-driven decision-making. Consumer Duty will now prompt the industry to recognise the need for high-performance data management, processing, and analysis. In some cases, that could mean leveraging financial simulation tools to improve consumer understanding of financial products through more visual, interactive, and pedagogical services. In other cases, the shift in regulatory expectations raises the urgency of long-standing issues the industry has failed to address, such as providing quality services to so-called orphan clients.
Today it is hardly possible to imagine a business without a digital presence. Even though the hybrid model seems to be an accepted consensus in the physical versus digital debate within finance, new customers will likely begin their journey with a firm via its website. One of our customers, a large Swedish insurer, discovered that for every Euro of monthly premiums executed in a digital channel, more than 10€ would be executed in other channels within six to eight weeks by those customers that used self-service services prior to engaging further. Therefore, digital onboarding is critical for setting expectations, building relationships, and ensuring that customers understand the services on offer and the potential impact on their financial wellbeing.
An engaging onboarding experience that helps clients deepen their understanding of their financial situation, the available investment products, and the impact of financial markets on their portfolios over time is an excellent way to bring a firm closer to meeting Consumer Duty requirements. It is also instrumental to retaining customers – a clear, visual and interactive view of services can help new investors understand the concept of risk and avoid uninformed financial decisions leading to premature churn and a decrease in life-long financial health. Financial institutions can use advanced financial analytics suites to incorporate goal-based planning components into their onboarding, effectively guiding customers to understand how a firm’s products or services can contribute to their financial objectives.
A responsible and consistent onboarding process can align customer expectations, serve as an engaging start to the relationship and leverage gamified elements to empower investors of all skill levels, providing unique insights and feedback for service development. However, another critical element of a successful omnichannel approach is consistency. Ensuring that all customer journeys are consistent, logical, and compatible with each other is crucial.
Consistent decision support is paramount to providing a high-quality multi-channel experience throughout a business, as well as fostering an efficient level of customer support. A simulation tool can ideally convert the entire client balance sheet to ensure consistency of all services and enable a holistic approach to a clients’ economy.
Furthermore, these tools can make a tremendous difference in the communication of value and price – by projecting the effects of taxes, fees and demonstrating value over time both visually and interactively. From the Consumer Duty and business model perspective, equipping services with financial simulation technology can propel a firm towards better client outcomes in terms of understanding price, value, product, services and support simultaneously.
Consumer Duty has drawn attention to dormant insurers’ customers, who have lost access to their advisors but still have assets with an insurer. They are often referred to as orphan clients. Orphans pose a challenge for financial institutions that strive to comply with Consumer Duty but do not wish to have, or do not have, regulatory permission to provide financial advice.
It is possible to support orphan customers without acting as an advisor. Insurers can provide financial guidance by ensuring the customer data is current and easily updatable and avoiding specific investment product recommendations. By leveraging financial analytics technology, insurers can provide solutions tailored to a particular portfolio, identify financially unsuitable products, educate customers on financial risk, and offer self-service forecasting and scenario analysis. Features like execution filters, automated investment re-balancing and market-related notifications can enhance customer engagement and decision-making.
From a customer data perspective, solutions for orphan clients can be built considering the data available for a specific customer rather than a theoretical complete set, where age is the most important attribute.
Implementing such solutions promotes compliance and continuous monitoring for dormant or orphaned clients and fosters customer engagement and data sharing, leading to more customer-centric capabilities and improved data management.
Consumer Duty regulations necessitate higher standards of care and better outcomes for consumers in the wealth management and insurance industry. Data-driven decision-making, efficient data management and responsible analysis will be essential.
Effective onboarding, facilitated by advanced financial analytics suites helps set expectations and build relationships while guiding customers towards their financial goals.
Consistency throughout the different customer journeys and using a financial simulation engine ensures a seamless and holistic approach, enabling better communication of value and price, initially and over time.
Supporting orphan clients without acting as advisors requires up-to-date customer data, avoiding specific investment recommendations, as well as focusing on tailored solutions and self-service tools.
Bridging the gaps in Consumer Duty while addressing orphan clients requires careful analysis of the regulatory context, utilising technology-driven solutions that empower customers and enhance regulatory compliance at the same time.