I was encouraged to read in the FCA Business Plan that it will launch a sandbox, creating a safe place for businesses to test new propositions that meet certain criteria, in order to ensure they will meet regulatory requirements.
It expects this will accelerate the development of genuinely novel products that benefit consumers and provide leading examples to regulators in other countries. It anticipates new firms coming to market as a result, which could create challenges for existing players, particularly if these new entrants have strong and trusted consumer brands.
There is no doubt innovation is in short supply across the long-term savings and protection markets in the UK. In fact, apart from impaired life annuities and guaranteed unit-linked products, most new propositions have been driven by regulatory change The digital revolution is likely to change this but many providers are struggling to turn theory into practice. I recently received a letter from a leading life company suggesting I register on its new website so I could get online valuations 24/7. Good news you might say, except the only product I have with that firm is an annuity.
We have learnt some interesting lessons about how to leverage digital technology to improve provider and adviser propositions. The key messages are very clear. Some are quite provocative.
As far as education is concerned, consumers exploit the internet to try and understand their financial affairs. If they have invested, they believe their providers and advisers have a duty of care to educate them about financial issues and rules. They want to learn about what will impact them and what, if any, changes they need to make.
Consumers react most positively to clear and easy-to-understand personalised digital experiences that enable them to instantly see the impact of possible decisions. They prefer buttons and sliders to having to type in numbers. They respond well to having greater control, particularly the ability to buy, sell and move money around. However, they do express concerns that they may make major life decisions online that are too easy and informal. As a result, some may value extra controls and breakpoints in irreversible decisions.
In a digital world, the human touch remains important. The ability to speak to someone before making a decision is a high priority for many. With this in mind, those deploying digital customer experiences need to plan for human involvement in “edge cases” where there may not be a clear, suitable solution. When pricing the proposition, decisions need to be made about what is the base price and what is extra.
Putting all this together successfully will be challenging and for most players it will require new capabilities. For example, solutions that cover a wide range of consumer needs beyond retail investments will be required, including property purchase and a broad spectrum of savings vehicles. As far as education is concerned it will probably require the use of third parties to provide exceptional content. Indeed, an ecosystem of third-party suppliers may need to be developed and managed in order to meet all consumers’ financial needs. In addition to these capabilities will be the need for courage, commitment and, of course, capital. Engaging with clients in a digital world is not for the faint-hearted.
Does all this mean digital financial services will be the preserve of institutions and strong consumer brands? At the moment, the jury is out. But my guess is many advisers will be harnessing the technology to enhance their own client experiences. It is possible most advisers will have people-based propositions with some digital components and most providers will have digital propositions with some human components.
So how might an adviser digitalise part of the client experience? Well, what about a smart interactive fact find? This would enable the client to complete an online form that challenges input and educates at the same time. For example, it could give the client a credit score as soon as the name and address was entered and identify the sort of investments similar people might hold via the postcode. If the factfind identified private education for children as an objective, it could indicate total costs and so on. More importantly, it could enable the client and the adviser to have a very informed and productive meeting with less time used for record keeping and more time on the vital “softer” issues.
Of course, for many new digital financial services players, engaging customers in the first place will be the greatest challenge. I am reminded of the strapline of a movie where a baseball fanatic built a stadium in the middle of nowhere on the basis of “If we build it, they will come.” It was Field of Dreams, and I would be surprised if we do not see parallels in our market quite soon.
Malcolm Kerr is senior adviser at EY