See it. Say it. Sorted. (or else)
Guy Anderson, Director of Retirement Income Distribution, Just
Guy Anderson, Director of Retirement Income Distribution, discusses the challenges Consumer Duty is laying at the door of retail investment platforms in ensuring good outcomes for their retirement income customers.
I know many of us are using the trains less than we were pre-pandemic. However, you would’ve needed to avoid them completely since 2016 to have not come into contact with “See it. Say it. Sorted.” — possibly one of the most annoying but effective five word slogans ever thought up by an advertising agency.
The slogan is part of an ongoing initiative to keep people safe by encouraging travellers to report anything they feel ‘doesn’t look right’ to the British Transport Police. The requirement to report your suspicions is obviously voluntary. But imagine for a moment, the atmosphere and the potential recriminations that might emerge amongst fellow commuters if it were to be made mandatory. You’d probably have to change your routine, use a different carriage, or even catch a different train, to avoid unpleasantness or worse, if it turned out you grassed someone up and there was nothing untoward.
The challenge for retail investment platforms
In a way, this is the challenge the regulator is laying at the door of retail investment platforms as part of the introduction of the FCA’s new Consumer Duty. Investment platforms have competed toe to toe over the last 10 years to embed themselves at the centre of the adviser’s tech stack, building strong and positive adviser partnerships while leaving the adviser to manage the end client relationship.
But as Mike Barrett of The Lang Cat points out in a recent Citywire article, this is about to change as a result of the explicit requirement for platforms to ensure good outcomes for its customers. Some of these requirements can be easier to identify, such as whether a customer is getting good value or not, but many other areas could be far harder to judge and will obviously require the availability and analysis of good quality data.
Take for example, customers who are taking regular withdrawals from their portfolios to sustain them in retirement. Will the platform need to have a view on how the adviser has structured the withdrawals and whether the scale of those withdrawals could lead to premature portfolio depletion, which most would consider to be a poor customer outcome I would suggest? And what about if a customer outcome is ‘less good’ as a direct result of a lack of functionality or optionality from the platform itself? Will it be expected to effectively whistle blow on itself, or will that be a failing of the adviser and their platform due diligence process?
So what’s missing?
I would argue that a good example of a lack of functionality and optionality when it comes to structuring portfolio withdrawals from a platform SIPP, would be an inability to incorporate all the potential income streams available, which should include guaranteed lifetime income. Innovative and forward looking platforms such as Novia and 7IM have already partnered with Just to build this functionality into their propositions. As a wider understanding of this aspect of the Consumer Duty unfolds, I think many more platforms will follow suit.
Some advisers will suggest that there is no demand from their clients — and therefore the platforms’ customers — to have the ability to include guaranteed income as part of their overall retirement income mix. The platform management may well be happy with that feedback in terms of their commercial priorities and Consumer Duty responsibilities. But as mentioned by the ATEB Group in one of their blogs recently:
The FCA in their ‘Live and Local’ events state that they see advisers using behavioural bias by asking customers leading questions to engineer the desired outcome.
This finding is borne out by research undertaken recently by Circero/Amo, on behalf of 7IM. Of the retirees who participated:
75% either agreed or strongly agreed that they would like some guaranteed income in retirement;
only 12% of advisers agreed or strongly agreed that their clients wanted any form of guaranteed income.
That’s a very revealing difference of opinion.
Enhancing outcomes with a guaranteed income producing asset
Research and analysis undertaken both internally and with independent external specialists, clearly shows that including a guaranteed income producing asset, such as our Secure Lifetime Income (SLI) solution, can enhance customer outcomes across a wide variety of circumstances as part of a SIPP retirement income portfolio. We’re also working closely with a range of discretionary investment managers who have come to understand how including such an asset as SLI within their decumulation focused Managed Portfolio Services (MPS) provides better outcomes. So we believe platforms will increasingly have to review their development schedules as they balance user feedback with Consumer Duty responsibilities.
I think it’s fair to say that the management teams at the independent platforms, who have spent years building deep and commercially worthwhile partnerships with advice firms, really don’t want to go anywhere near some of the issues I’ve raised. Consumer Duty will require them to know a lot more about their customers than they do currently, which could put considerable strain on their working relationships with their supporting advisers. It’s not clear yet how far platforms will need to go to show they’re ensuring customers are enjoying good outcomes when using their services. Clearly though, having competitive functionality and optionality will be key in helping their partners fulfil their Consumer Duty responsibilities too.
The statements and opinions expressed in this article are those of the author and do not necessarily reflect those of Novia Financial plc or any of its employees. The company does not take any responsibility for the views of the author.