By Paul Goodwin
The success of targeted support will be determined by two factors – the risk appetite of providers and the data they use to segment customers
Like the rest of our industry, I was excited to see the publication of CP27/17 -Supporting consumers’ pensions and investment decisions: proposals for targeted support. FCA has been clear for some time now that it would like firms to better support their customers in making better financial decisions and I want to see how this can be made into a reality.
From work with life, pension and investment providers, I see two primary blockers to the successful implementation of CP27/17’s flagship proposal of targeted support. The first is providers’ legacy risk appetite, and the second is the data used to segment customers.
Provider Risk teams are generally cautious by nature. This caution keeps firms a long distance from the current Advice boundary, thereby being ‘safe’ from a regulatory perspective, but also largely unhelpful in supporting customers. Generic, technical, jargon-filled communications are about the best that customers can expect. It’s no wonder that most financial communication received ends up, unread, in the ‘shoe box of shame’.
Targeted Support gives providers the opportunity to become much more helpful for customers by guiding them to take actions which are likely to improve their financial outcomes. I do fear that the communications generated will remain bland, using the same technical and jargon-filled language. They’ll be ‘safe’, though, for regulatory purposes. Safe, but not helpful.
Even where providers do decide to be more punchy with their communications and onward journeys under Targeted Support, I have to question the data available to build their customer segments. Let’s take a pension provider that looks after one pot of £25,000 for a customer, who happens to be a deferred member of a workplace scheme. What assumptions is the provider going to make about how to segment that customer? Age? Fund value? Planned retirement age? Marital status? Other assets? It’s guesswork at best.
This is where data plays a key role. Just collecting one more set of data – other pension pots – can make a huge difference to the segment that the provider places the member into. What if the member has no other pension pots? What if the member has a mix of DB and DC? What if the member has £250,000 in a DC pot elsewhere? How would the provider use Targeted Support to communicate with the customer in each of those situations? Surely in a way that is both more relevant and more useful for the customer.
This brings us back to our starting point. I really like Targeted Support. It has the potential to be game-changing in how our industry supports more customers to make better financial decisions. But to do this we need to be brave and use a little more data. Not too much data to make segmentation too individualised, but enough to make it relevant for the customer. Then, critically, be more brave in what we suggest as actions to customers.
The FCA has given our industry the challenge to better support customers. Who’s up for it?
Paul Goodwin is Account Director - Pensions at Moneyhub