Our industry is benefiting from a level of media attention that ought to represent a massive, free, marketing opportunity. There can be no doubt that the public has an unprecedented level of interest in personal saving.
A decade ago pensions and savings never made front-page news in the national press. That this increased media attention is not translating to a dramatic increase in the sales of long-term savings, suggests to me that it is time for a radical rethink about the way we articulate the value we deliver to our customers.
While treating customers fairly may require that we communicate clearly with the consumer, our culture is built around the use of industry jargon, which by definition constrains customer understanding.
There is increasing evidence that consumers, young and old, recognise the need to make their own provision for their long-term financial security. Yet against this background hardly a day goes by without a fresh attack on the cost of some element of our industry. Regrettably politicians have worked out that stories, however inaccurate, on the excessive cost of financial products can make them look good to the public.
I am increasingly of the view that the only way that we can fully address such challenges is to embrace an unprecedented level of transparency. We need to be clear about real costs; not just of advice but of the entire service customers are being provided with.
There is strong evidence that organisations that offer products which consumers cannot easily understand, the next generation of financial consumers will be far less forgiving than their parents. Having grown up in an information society, with the skill to extract information, if they cannot understand one company’s products they will seek out an alternate service provider that explains their proposition more clearly.
To achieve this, the industry needs to take a fresh approach to the disclosure of charges and fees, especially fund management. Why should it be so alien to articulate to consumers, using language they can understand, the benefits and costs, in pounds and pence terms of investment in financial products?
Why should consumers not receive a clear statement each year in cash terms, not opaque percentages, of exactly how much the value of their investment increased side by side with, in the same cash terms, exactly how much in pounds and pence the fund manager took for themselves over this period.
To present such information in the context of long-term savings, this might also appear side by side with a summary of overall how much the manager has increased the value of the net investment since inception and a similar summary of their total charges, in cash terms, over the same period.
“Why are dealing costs excluded from the information provided to consumers?”
As advisers will have recommended switches from time to time, there will need to be a summary for each fund as well as for the contract overall since inception. Such information could also provide a useful measure to help customers understand the long-term value of advice.
In the early years of a contract or an investment in a fund there might also be an indication of how a similar investment might have performed and the charges that would have been taken over the last five years.
In practice, while unbundled wrap platforms make transparency one of their key selling points, the reality is that even they can only take transparency so far.
To have a fully transparent system all the costs must be disclosed. For example, why are dealing costs excluded from the information provided to consumers?
If we are to make our industry inclusive and easy for consumers to understand, change may need to start with the regulator.
So much of what is put forward that confuses customers is structured in this way to meet compliance obligations. Perhaps the emergence of the FCA provides an opportunity for a fresh approach from both the industry and its regulators. When considering this we must, of course, also bear in mind European regulatory obligations.
Historically there may have been a genuine argument that it was uneconomic to maintain and document the full cost of any investment but, today, advances in technology make this entirely achievable. Our industry will only earn the degree of trust we need from consumers, to make them actually want to buy our products, once we start talking to them in language and terms that they understand.
There is no doubt that a new generation of technology-driven, financial services manufacturing businesses, will evolve in the next few years. Leading edge technology can reduce the cost of bringing such organisations to market. One only has to look at the increase in consumer appetite for supermarket banking as an alternative to the big four high street banks to recognise that there are many other organisations with both the financial muscle and genuine consumer trust who are well placed to undermine traditional providers if they don’t change the way they communicate with them.
The technology exists to deliver transparency to consumers. However, I question how many conventional life offices and fund management groups are willing to embrace the cultural change this represents.
Those who can should be well placed to capitalise on the enormous opportunities that arise from an increasing awareness of individuals’ need to make their own provision for the future.
Ian McKenna is director of Finance & Technology Research Centre