The future game changer for pensions will be simple, regulated, automated advice as part of a personalised hybrid model, delivered well, through trusted advisers.
Why? Firstly because people want and need personal advice and won’t make decisions without it.
In 2015, the Citizens Advice Bureau found that more than half (53%) of customers wanted expert help on how to withdraw their savings. Work on financial decision making tells us that without personal advice which helps an individual understand the best course of action for them, most people simply don’t take action. This is because:
- Understanding financial services is difficult. It’s not like planning a holiday or buying a car; it requires slow, methodical thinking.
- The levels of financial capability* in the UK are extremely low due to risk aversion and product complexity; * (defined by the FCA as people’s ability and motivation to act in addressing their financial situation,) and
- Financial services is one of the least trusted sectors.
So why don’t employees access the advice they need? 3 key reasons include:
- Price – On average customers are paying £150 per hour for professional advice according to unbiased. For employees with modest pots or who are starting out on their accumulation journey, this may not represent value for money;
- Access – many employees are also time poor. They lack the time needed to go and meet face to face with an adviser.
- Inability to identify firms that are trustworthy and likely to do a good job.
With support for automation from the FCA, automated advice is now moving from provision through a few innovative, early adopters, into the mainstream. Its effect will be revolutionary. The majority of employees have quite simple needs and questions most of the time. This is particularly true of those who are earlier in their wealth accumulation journey.
Simple, automated services are well placed to answer these questions. When delivered well and as part of a hybrid model where customers can talk to an adviser they can trust, the take up can be expected to be substantial. For advisers and firms it will enable them to start to build relationships with employees. These workers may have smaller pension balances today but represent the wealthier of tomorrow who will have more complex needs. For customers it will provide easy access to the key. Two birds with one stone.
Does the hybrid model work? Absolutely. The largest Registered Investment Adviser in the US is Financial Engines which advises on well over $1 trillion for 900 million employees, using automated advice online, but backed up by telephone agents and advisers. In 2016 they bought a chain of high street investment advisers who will provide advice based on Financial Engines’ algorithms; testament to the strength of the hybrid model.