Demonstrating good value is a core element of the Consumer Duty rules, but how on earth do your measure an intangible like value and when it can mean different things to different people? Justin Corliss, Technical & Pensions Expert, Royal London, considers the dilemma.
Anyone who works in a fee-based advice business needs to demonstrate value on an ongoing basis or their clients will likely go elsewhere. However, the Consumer Duty has turbo charged this concept of value by requiring advice firms to evidence and document that clients are receiving good value in the advice process, and on an ongoing basis. That has set a much higher bar and is not an easy thing to do as value is somewhat subjective and what represents value to one person may not do so for another.
To investigate this further, Royal London, in conjunction with the Lang Cat, undertook a piece of research to garner views on value from consumers and advisers. This resulted in the “The meaning of Value” report.
We began by analysing the unprompted response consumers gave to the question, “What do you think value is?” when asked in the context of financial advice. Of greatest concern is that 14% of the 2000 respondents gave the answer “I don’t know”. While you would expect some, “don’t knows” 14% does feel quite high given its importance in the Consumer Duty.
Perhaps unsurprisingly, there was a significant minority (16%), who felt price was the key component in the value measure. It may just be that price is just the most tangible aspect of a somewhat intangible concept. Even within the cohort most focused on price, there is an acknowledgement that if something is very cheap, then it’s possibly cheap for a reason and that it might not represent value.
The research also looks to uncover what advisers think their clients value in financial advice. You’d really hope this aligns with the consumer research. It’s quite difficult for an adviser firm to demonstrate and evidence value, if your clients don’t value the things you think they do. Fortunately, there’s quite strong correlation between the two, with one glaring exception. Investment performance.
When asked how important advisers think investment performance is to clients in the value measure, almost half said it has some importance but isn’t the most important thing. However, 50% of clients surveyed said it was the most important aspect in the value measure, with a further 42% describing it as important. This is problematic as investment performance is, to a large extent, out of advisers’ control.
So, part of the value measure may need to include an education piece with clients, not just around the non-investment aspects of advice, but also around the reality of investment.
It’s clear from the report that clients feel the peace of mind they enjoy from an adviser who has their best interests at heart, combined with the skills and knowledge to achieve these objectives represents value. However, clients also need greater insight into how financial investment works, and that market volatility is an intrinsic feature, but one that properly managed can create short term opportunities.
Clients need clarity around how risk profiles and capacity for loss dictate investment parameters, how goals, objectives, life stage and a multitude of other factors dictate the investment strategy that’s suitable, and the impact this is likely to have on returns.
The report finishes with an outline of how adviser firms could create a robust and repeatable value measure within their client satisfaction surveys or whatever means they use to gather client feedback post advice. The research showed a relatively small proportion of those surveyed had an explicit method for measuring the value their clients derive from the advice process. To date I’m unaware of the regulator carrying out remedial action specifically as a result of poor value assessment, but as value is central to one of the four outcomes, this may not be the case for long.
The FCA may be allowing a bedding in period for the Consumer Duty before policing some of the more difficult elements, but with the first anniversary approaching, this may change. Value is key concept within Consumer Duty, advice firms really need to determine an effective value measure within their business and implement it as soon as possible. Of course, there’s no single way to measure value, and advice firms are free to employ whatever method they choose.
About the research
The adviser research was conducted with the lang cat’s 1300+ strong Adviser Research Panel during September 2023. 160 responses were received. 69% of respondents described themselves as either a financial adviser or financial planner. The remaining respondents were split across paraplanning, administration and compliance roles. 72% of respondents are part of a directly authorised firm, with a further 16% being network members.
The consumer research was conducted by Opinium on 11th to 13th October 2023. Sample size was 2000, weighted to be nationally representative.
Main image: bruce-mars-xj8qrWvuOEs-unsplash
