On January 1st, whilst most of us were nursing hangovers and making doomed-to-fail New Year’s resolutions, the FSA was toasting the coming into force of the Retail Distribution Review (RDR) and the introduction of new rules that will affect us all in the years to come.
The rule changes are the first part of the regulator’s attempts to restore the UK public’s trust in the financial services industry, and determines how we get advice on our finances, and more importantly, how much we pay for that.
OK, so it might not initially sound like the most exciting topic for a design blog, but the impact of the RDR will be felt by most of us, even if we don’t know it yet. The reality is, we’re all going to have to be more responsible for our own financial future, and this may finally be the catalyst for some dramatic improvements in the provision of online self-service solutions.
However, I’m still going to try and make this short and snappy.
What is RDR?
The FSA’s overhaul of how financial advice is paid for in the UK. The new rules mean that advisors are no longer able to receive commissions from product providers, including controversial “trail commissions”, the true level of which was often “hidden” from customers, and instead they will have to charge transparent fees to customers for the advice they give.
How is RDR going to affect me?
If you get advice on your finances, whether it be from a Bank or an IFA, you’re going to start seeing the cost of that advice presented to you more transparently.
This means you’re going to be more aware of what you’re paying for, and so you may question whether you feel you’re getting value for money. Many of us may decide we don’t want that advice and go it alone.
Who stands to gain or lose?
Good IFAs and the Wealth Management Banks have built up trusted long-term relationships with their customers, many of which have already moved their clients to a fee paying basis. They will continue to keep hold of many of their clients, especially those with higher value, more complex needs.
But the costs of keeping advisors qualified is more onerous now. This means it is no longer cost-effective for banks and IFAs to continue providing the same level of advice to those who can’t afford to pay the fees, or those whose portfolios don’t meet a certain minimum size.
Many Banks are culling their saleforces, withdrawing their “free” advice options, and concentrating their face-to-face advisor relationships on only the very wealthy. This is going to leave a large group of customers, the “squeezed middle”, who have genuine and important financial needs, and some level of investible assets, with no access to what they perceive as affordable advice.
Recent research by Deloitte estimated that the RDR will create up to 5.5m “disenfranchised” customers, who will either stop using their existing financial advisers or be denied access to new advisers because they are not deemed cost effective.
The opportunity for digital
So, this is the exciting bit. This may finally be the catalyst for banks and the direct-to-consumer fund platforms to develop online advice and guidance solutions that help customers self-serve their need for investment advice.
Until now, these have been very much “execution only” platforms, comfortable territory for only the knowledgeable and more confident investor. But the potential influx of customers is going to sharpen the online provider’s appetite to develop digital offerings that bring new and novice investors into the market.
And the prize is large. The Investment Management Association estimates the direct-to-consumer funds market is worth £73bn, or 13 per cent of total UK retail investment today, and this is set to grow as the millions of disenfranchised customers look for new places to manage their finances.
How-to guides and decision making tools
These new customers will want to be shown how to make decisions about their financial future on their own, supported by how-to guides, and hand-held through the processes involved. Self –service tools, such as portfolio analysers, risk/reward calculators, alerts and access to expert opinion are going to need to go beyond the levels at which those have operated at until now.
Mobile and video
We will also start to see technology bridging the gap between face-to-face personalised advice, and the remote delivery of automated tailored solutions. Providers will invest in mobile and tablet solutions, and make more use of video, as they strive to design customers experiences that inspire confidence and help investors overcome their natural inertia in planning their finances.
Will they succeed?
There is no mistaking the opportunity here, but will the banks and direct-to-customer providers drop the ball?
Looking at the current crop of platforms and bank mass-market guides doesn’t inspire confidence. This sector has been poor at understanding customer needs and fears, and too many online investment offerings look like they have been designed by experts for experts. In our research, we have often found that even quite wealthy customers are intimidated by the investment options they have and how they are presented online.
Insight, pain-points, and designing to overcome inertia
To get this right, the design teams at banks and fund platforms are going to need to understand the current pain-points that customers have, how they make decisions about providers and products, and where they need hand-holding and confidence building. It is just too easy at the moment to put off decisions about your financial future for another day. We sense that the online experience is raising more questions than it is providing answers for, and it’s all too easy not to take action.
Banks and the fund platforms should take a lesson from other sectors in designing their propositions for this mass-affluent market segment. Consumers will be drawn to brands that can “tell a story”, that can make sense of reducing the many many options that face an investor, down to a few clear choices, so that the decision feels more like a journey, rather than a daunting wall of choices.
A detailed understanding of the mental model of this decision making process is vital, and designing a digital experience to support this can only succeed if real customers are invited into the design process, and consulted with throughout the development process.
The brands that do this stand to be the big winners from the RDR. But who will they be?