Nearly all financial advisers believe it is primarily their responsibility to ensure communications, products and services are suitable and that clients receive fair value. That’s one of the key findings from our recent report on the implications of Consumer Duty for the retail wealth supply chain (more details here).

What struck me most in speaking with financial advisers and their clients, as well as compliance and operations directors, is the strength of the adviser-client relationship and how deeply held the commitment is to deliver good outcomes for clients.

In order for Consumer Duty to be effective, all parties across the value chain need to work together to support those relationships, share information and collaborate on communication and the processing of client requests.

Yet tensions are present. Three crucial asymmetries stood out to me from our research into how firms are planning to deliver and evidence the outcomes at the core of the new Consumer Duty.

1. ‘Value’ is subjective

Consumer Duty centres on ensuring value is provided to clients, and advice firms are actively looking at better ways to demonstrate that value. Advisers and clients both consistently told us that value is more than ‘just’ the result of financial gain and investment performance against the fees paid – and should be weighed against other non-financial, relationship-focussed indicators, such as peace of mind, trust and helping clients achieve their life ambitions.

However, it was clear from our research that how firms and clients perceive, convey and use the concept of value to define ‘good outcomes’ is very subjective. We heard a disparity between what advisers consider ‘good’ value is not necessarily the same as their clients – and this represents a crucial challenge in defining a useful metric that can be demonstrated to the regulator to illustrate compliance with the Consumer Duty rules.

Interestingly, the seemingly meaningful and emotional role that advice firms are (as mentioned above) recognised for by consumers – is typically reduced to little when consumers were asked ‘how satisfied they are with advice’ and to put into context, ‘why’.

“As long as my investments perform” and “as long as they don’t lose me money” were typical caveats we heard in several of our interviews. You might think this is an obvious, to-be-expected response. But this surprised and intrigued me. How can financial advice – a service that is so readily spoken about as so emotionally valuable to people’s lives – be so easily reduced to something so transactional? Why does the emotional value not carry through? And how can the emotional added-value of financial confidence-building and reassurance ever play a role in defining value to the end client, if clients’ themselves do not see confidence building and reassurance as noteworthy components of ‘value’?

Does this matter? I think it does because if firms cannot convey value to consumers in ways other than investment performance against fees, in tough market conditions this difference between adviser and consumer perception is likely to become more pronounced. What’s more is that any shift by firms away from using investment performance as the value benchmark, could leave firms exposed to lower value perceptions from the client perspective.

Part of the answers lies in the fact that although advisers recognise emotional support and reassurance as influential in shaping the perception of the overall service provided and the nature of the client relationship itself, it is one of the aspects of ‘value’ that is particularly troublesome in quantifying. This can lead advisers to rely on investment performance as the key form of ‘evidence’ documented to demonstrate value to the client. And it is this – in combination with the plethora of technical information supporting investment performance which overwhelms consumers and leads them to default to a general appraisal of overall portfolio performance when thinking about what value ‘is’.

2. The value delivered by financial advice firms can be negatively impacted by the level of service in the on-going relationship being at odds with client needs.

 Advisers need to monitor consumer outcomes by delivering ongoing support and regular reviews of objectives, however the advisers we spoke to expressed concern whether clients without complex needs should be paying for this level of ongoing activity.

Our research with consumer and advisers also highlighted that consumers expect their adviser to be ‘always on’, in order to fall back on their expertise when needed. But this was in contrast to the view of advisers that those who pay for on-going advice – yet need little in practice – would not be getting ‘value for money’ in terms of the amount of time input by the financial advice professional.

Removing the ability to pay automatically for particular elements of ongoing support when it isn’t needed is one way that clients with a lower level of assets can still access the expertise of advisers in ways relevant (and perhaps more proportional) to their needs, whilst clients with more assets can get better value because of the differentiation in the service proposition, offered across the spectrum of client complexity.

Advisers highlighted time-tracking as a further tool to address the issue, in so far as having an overview of the resource that is dedicated to specific clients. This is something advisers and compliance managers said they were particularly engaged with and actively looking at, to be able to more accurately measure the value on offer.

3. Knowledge of client needs can be siloed by firms. Data sharing difficulties further impacts the efficiency of information sharing across the supply chain

Firms across the supply chain have a responsibility to ensure they understand and uphold consumer needs in order to provide cost effective, good outcomes for consumers, but often it is the advice firms that are seen as shouldering this responsibility because of their close-hand awareness and in-depth knowledge of client needs and behaviours.

This perceived responsibility presents two challenges for firms in the supply chain: namely that data and insights about consumers are not shared effectively (or not shared at all), limiting the ability for  products and services to meet the needs of target markets as required by Consumer Duty. In addition, advice firms will continue to have to navigate “sticking points” in the distribution chain where providers aren’t fully aware of the impact of inefficient data sharing and process implementation e.g. not issuing LOAs quickly enough.

The next blog in this series will consider these challenges and the opportunities in overcoming them.

For more information on our work on Consumer Duty, contact us at enquiries@nextwealth.co.uk.

Philip Leigh is Qualitative Researcher at NextWealth