"The VFM topic still needs to be more organised regarding what the FCA is really seeking and is potentially very disruptive for advice business models."
In the world of professional financial advice, it never rains, but it pours when it comes to the regulator calling for firms across the sector to take Consumer Duty very seriously. The Financial Conduct Authority (FCA) has been issuing all manner of communications and messages, and it’s clear there will be no delay to the implementation date of 31 July. So, as the weeks fly by this Spring and into Summer, it would be a brave advice business that doesn’t take heed of what they’ll need to show as proof of compliance should a regulatory visitor come knocking.
What has become more apparent by the day is that the FCA will make a big deal out of one particular strand of the Duty on advice firms, and it’s just as certain this will cause firms the most disquiet and discomfort, verging on anxiety for some. You know what it is: Value for Money (VFM).
Value For Money or Very Fine Mess?
At the regulator’s Consumer Duty adviser seminar on 28 February, those attending seemed reasonably comfortable with most elements of the Duty as relating to their segment of the retail investment chain – albeit there’s a general awareness that some elbow grease is required shortly. But this confidence ebbed away regarding the value for money aspects. No matter that ‘fair value’ has been a staple of the regulatory environment for ages. The screw is being tightened on firms to justify the amount they charge clients and how they charge.
The problem for advisers is that the VFM topic still needs to be more organised regarding what the FCA is really seeking and is potentially very disruptive for advice business models. For example, the regulator summoned up a number of examples covering whether ongoing percentage-based advice fees represent good value for money for the end client. The writing is on the wall that if they start to push hard on this theme once Consumer Duty has gone live, this could cause a lot of issues for advisers when they are ‘encouraged’ to remodel their charging structures to stay compliant.
The old bugbear still exists, namely that just as with beauty, value is very much in the eye of the beholder. What one client sees as value received from their financial adviser (“I’m relieved I’ve got a smart adviser to sort out my complicated finances for me”) can be different from what another client down the road feels (“I love that she even asks after my family and helps me pin down what I really want in life”). Both might be paying the same fees for this privilege – and a privilege it is these days to feel confident about your finances – but both would diverge when it comes to articulating the value they get from taking regulated advice. And there are myriad other interpretations of value among clients if they’re asked for their opinion.
Tunnel vision about cost versus value?
At FCA HQ, testing for VFM is much more narrowly focused, e.g. expecting firms to justify and evidence why they charge a client a fee yearly even if they are not actively intervening with investments yearly. At the adviser seminar, concepts including ‘exploiting consumer loyalty and inertia’, ‘percentage charging’ and ‘pricing clusters’ all came under fire from the hosts. Advisers didn’t like this in terms of the blunt negative connotations in the messaging and because they seemed to feel left in the dark about what they should be doing about ‘value’ under the Duty. It’s fair to say there’s some clouded vision on both sides of the fence.
This whole topic is going to rumble on, no doubt about that. Time will tell who will feel the regulator’s hand on their collar for alleged VFM failings. On a more positive note, however, there’s another way of looking at the ‘value problem’ that ought to interest advice firms.
Tech to the rescue
Like in almost every walk of life, innovative technology is coming to the fore to help users eliminate repetitive grunt work and quickly identify plans that can make a difference. Tech can be deployed to free advisers and planners to devote more time to advice enriched by the human touch, such as catching up with each client more often.
Another area where tech can help is health-checking client situations and aspirations, tweaking investment choices where sensible, and supporting clients when circumstances particularly call for reassurance and empathy (from market turbulence to family upheaval to bereavement).
In a few words, you can get tech to do the stuff with clients that truly need no one from the firm to handle while you build and nurture the touch-point relationships with your clients. Surely this hand-on-the-tiller reinforcement is of high value to the people who pay you fees.
Deploy the tech, and with this style of hybrid operation – using available digital processes for the previously labour-intensive educational, onboarding and routine admin elements – you’ll be a firm doing great things to enhance the value you provide for the fees you charge. That should signal an AOK from the FCA for your VFM.
