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The Y’s and wherefores

Over the last year, I believe there has been a substantial improvement in the quality of many of the documents emanating from the FSA. Several have been far more practitioner-friendly and have given clear guidance on what the regulator thinks good and bad look like.

Regrettably, the recent industry update, Financial Promotions using New Media, does not fall into this category. On the contrary, it has all the hallmarks of a tired old regulator supervising a tired old industry.

Although it would be wrong of me to discourage anybody from reading FSA guidance, I think I can effectively summarise the document in one sentence: whatever you do in the old world, you have to do exactly the same in the new.

I am not advocating new communication channels being given preferential treatment over traditional media but it is interesting to contrast the FSA document with a similar notice from Finra, the American securities regulator. While the FSA states that “applying the rules to financial promotions made using new media is no different to financial promotions made using any other medium”, the approach of the US document is that “Finra is seeking to interpret its rules in a flexible manner to allow firms to communicate with clients and investors using this new technology”.

While the FSA regurgitates all its old rules, Finra gives clear guidance in a question and answer format on what firms should do in addition to directing readers to all their existing requirements.

Society is rapidly evolving and it is very clear that while Generation X may have substantially followed the attitudes and practices of their predecessors – the baby boomers – Generation Y take an entirely different approach to many different subjects.

New media is transforming the world and it is increasingly clear that the sun is setting on the world of paper-based communication. Any regulator that wishes to be fit for purpose in the 21st century must be able to come up with requirements that can adapt to the digital revolution.

In saying this, I am recognising that some forms of new media, Twitter in particular, present challenges.

Digital communications are a global phenomenon and perhaps elements of their regulations necessitate a global approach. It is clear that much collaboration is taking place between global regulators over restructuring the banking system and perhaps a multinational approach is also needed in other areas.

There is an urgent need for our industry to learn how to communicate with the next generation of financial consumers

One of the challenges for the new Consumer Protection and Markets Authority will be to demonstrate the need for UK-based regulation and that this will not simply goldplate European activity.

There is an urgent need for our industry to learn how to communicate with the next generation of financial consumers. The FSA has a statutory objective of increasing public awareness, “promoting public under-standing of the financial system”, to quote its own website.

On the basis of early results from work we are conducting into the financial require-ments of Generation Y, it is not doing a very good job of this.
Take, for example, the conversation I had with one 21-year-old last week. Asked whether she was interested in pensions, the response was: “I would like to start my pension as soon as possible. I understand that the sooner I start putting money in, the more I will get in the long run but the information I need simply isn’t available in the places I look.”

This looks like clear evidence the FSA is failing to meet an essential responsibility.

I hope the FSA will revisit the issue of social media in the near future but I also believe the above suggests the industry cannot allow itself the luxury of waiting for such action. If we do not want to see the savings ratio deteriorate further, our industry, dominated as it is by white males in their 40s and 50s, needs to learn to understand the attitudes and approaches of the diverse community of consumers who represent the future of society.

With the current activity on the RDR, it would be understandable if organisations failed to look at how they need to adapt to support these new consumers. To do so, however, probably means the end of the advice process as we know it – as a mechanism for distributing financial services.

Our research increasingly leans towards the conclusion that without major changes in the way in which firms work, traditional advice will disappear for all but a tiny minority of consumers beyond around 2020. Given the average age of advisers, this may not present too much of a challenge to individuals. However, the prospect for the companies they represent looks increasingly gloomy.

Change has to come, at least for those organisations that still want to exist in 20 years. The current Direct Line television advertising makes it all too clear what can happen to those who ignore cultural change in a market sector closely aligned to ours. The direct-to-consumer insurer is actively stating that the days of the personal lines insurance broker are dead and it now sees its competition as the price comparison sites.

From our recent conversations, anyone in this industry who continues to offer 1980s’ solutions to 21st century consumers may be in for a painful lesson. It is clear that you can only really design financial products to meet the needs of Generation Y by engaging with them, understanding their thinking, their values and how they reach decisions. Doing so can be truly enlightening.

Ian McKenna is director of the Finance & Technology Research Centre


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