As I wrote at the start of the summer, the consumer duty is already transforming our industry, and has the potential to drive significant client value. But, as I also noted, it’s producing some unintended consequences.
Despite the regulatory and governmental focus on tackling the advice gap, research suggests a slide in the opposite direction. A report by the Lang Cat found 55 per cent of advisers have stopped serving at least some of their clients as a result of the consumer duty.
A survey by Boring Money backs this up, finding that more people have fallen into the advice gap over the past year, even as a fall in reported confidence among investors has increased the need for help.
While firms felt confident about their ability to meet the consumer duty outcomes ahead of implementation, the reality has proved more challenging. With the regulator laser-focused on ongoing value, many are finding it has become uneconomical to serve their lower-value clients with their current business models and processes.
I have had three meetings with chief executives of our clients in recent weeks that together signal to me an industry on the move.
The first was with a regional advice firm – fairly traditional, with an established adviser team. While they have adopted advice technology, there is little appetite among their advisers to service higher volumes of smaller clients.
As a direct response to consumer duty, this firm has introduced a revenue threshold below which it will no longer service existing clients or take on new ones.
The second was with an innovative player that is only targeting lower-value clients. This company has set up a phone and video call centre and services clients only through those routes, not face-to-face, gaining leads online. The whole culture of the business is about (much) higher volumes of smaller clients, using advice technology to provide them with great value.
The third meeting I had was with an established consolidator. They continue to buy firms, but are discounting the value of firms where clients are not being serviced. This is a double hit in that not only does it go to value of the current client book, it goes to the future potential value too.
The consolidator has used integrated advice technology for many years to facilitate its scaling, but has recently taken this further with a distinct team and online advice offer using the same process but lighter touch to ensure the economics work at scale.
The big picture? Some firms are shedding parts of their client base, others are seizing the opportunity to snap up these segments. Some do not want to serve lower-value clients, some are still working out how to do it – but others are already demonstrating that it can be done at scale.
Vital ingredients for getting the consumer duty right
If you are thinking about how to get it right in your own business, there are three ingredients I think are vital.
