Consumer Duty Whitepaper: Dunstan Thomas underlines digital opportunities for pension providers
26 Jan 2023
Dunstan Thomas has launched a White Paper highlighting both the threats and opportunities which the Financial Conduct Authority’s (FCA) Consumer Duty regulation poses for pension both product providers and adviser platforms.
New outcomes-orientated demands that Duty places on pensions market participants extend to supporting customers better and making sure they are holding savings in products, asset classes and underlying investments which suit their stage in life, current risk appetite and financial objectives. The Duty must be complied with for existing customers within six months, from the end of July 2023.
The four Consumer Duty Outcomes
The four key Consumer Duty outcomes focus on ensuring consumers understand the features, charges and benefits of the products they have put savings into. The Duty also clarifies that it is no longer adequate to send statutory compliance documentation and hope that it is read and understood.
Providers will need to check that documentation has been read and even whether it has been understood. Of course, digital document delivery, via secure portals for example, makes it possible to check engagement and understanding levels. For example, it is possible to create engaging digital customer journeys which check customers’ sophistication levels before investing into a new product or asset class - probing if customers need any further help or clarification before making a decision which puts some of their savings at greater risk.
And if consumers need more support, then the Duty also requires providers and platforms to act on this to provide contact centre support, web chat facilities and other customer services channels to ensure they gain access to that support in the way in which they want to do it, all in a timely manner.
Adrian Boulding, Director of Retirement Strategy at Dunstan Thomas explains:
“Many of the ecommerce ‘nudge’ tools which were developed to optimise sales on consumer product websites can now be adapted by financial product providers to meet Consumer Duty requirements. For example, what about adapting an ‘Abandoned Cart’ tool to reconnect with customers that are over 60 and have explored your decumulation options pathways, made some selections in one of your planning tools but then abandoned the session?
“An opportunity could be created to provide feedback on why they decided to take no action - uncovering whether they have a good understanding of their options, have recognised they have a savings shortfall or some other dependency which has led to the customer getting stuck.”
Consumer Duty Tools
Dunstan Thomas sketches out six different digital tools which it could build for providers to help them meet Consumer Duty requirements, including one that is likely to appeal to both The Pensions Regulator and the FCA – a ‘Value for Money Assessment Tool’. A definition of how to calculate Value for Money of financial products is still not agreed by the regulators but to Dunstan Thomas it seems clear that it must be based on at least four sets of data:
- Contribution levels i.e., the amount saved so far and the amount being put in on a monthly or annual basis
- Investment growth including average annual amount gained and percentage growth over the life of the plan
- Total costs and charges: with average annual amount and percentage paid on all charges (with options to drill deeper to get a breakdown of who was paid for what)
- Decumulation options: covering what percentage of the pot the customer plans to take out in Tax Free Cash at retirement, what percentage will be held in Drawdown and what percentage might be used to purchase an annuity, with age at which that annuity might be purchased also specified.
However, that may not be enough data for a true Value for Money calculator – what about qualitative measures like customer service, as well as brand values and reputation scores – how does the product and provider fare in these areas?
If customers want to make sure they are with the right platform, product providers and even fund managers and individual funds, they ought to be able to run checks and make comparisons with a basket of other providers – all with a few clicks of their mouse. It is this kind of power which the regulator appears to envisage in the new Duty which goes live this summer.
Adrian Boulding of Dunstan Thomas adds:
“The new Consumer Duty regulation will give firms an opportunity to take ownership of data-driven innovation which must now be accelerated. The FCA will want to understand how firms are achieving good consumer outcomes by finding out if firms are using all the data available to them to ensure that better outcomes are being delivered to all their customers.”
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