Guy Munton: Hi everyone and welcome to the latest edition of FS in Focus. I'm Guy Munton, a Partner in our Finance, Risk and Compliance practice, and we're going to spend the next five minutes unpacking Targeted Support and what it means for the UK financial services sector.
You may have heard the Chancellor, Rachel Reeves, reference Targeted Support in her much-discussed Mansion House speech last week. And that's because it's directly aligned with the Government's stated objective of regulating for growth.
I'm delighted to be joined by Ellie Simmons from our Wealth and Asset Management team and Jo Cordner from our Risk and Compliance business to talk through the key aspects of targeted support and why it's such an important and exciting development for the financial services sector. Welcome both.
So Ellie, let's start with the basics. Tell us all about Targeted Support and why it's being introduced now.
Ellie Simmons: Sure. So, the Targeted Support framework is one of the outcomes of the FCA's advice guidance boundary review, originally launched in 2022. Targeted Support focuses specifically on pensions and retail investment activity.
So, it allows providers to suggest a particular product or course of action that could drive better outcomes for groups of customers with common characteristics ie, “customers like you could benefit from taking the following next step”. This is a big change in the industry. So, what we see with firms today is that they're nervous on engaging beyond highly generic guidance out of fear of overstepping into that kind of financial advice space.
So, the industry has been overwhelmingly positive about targeted support, because really they do want to help their customers have better financial decisions. So why is that kind of engagement and the support that comes with it so relevant right now? UK customers have not had access to good quality support when making financial decisions for a long time.
The FCA’s most recent Financial Life survey shows only 10% of UK adults have received financial advice within the last 12 months. With the UK government now aggressively promoting increased retail investment in the UK economy, it's more important than ever that customers have access to meaningful information on how to invest their money well.
We also have the context of an increase in the volume of scams and investment fraud facing UK customers. It's important that people have providers that they can trust and rely on to have frank discussions with them about their financial decisions and these trends are not just in the UK.
We see that this is a global theme. Europe, Canada, Australia and New Zealand have all been carrying out reviews seeking to improve access to financial advice over recent years.
Guy Munton: So, Jo this all sounds really positive. It's rare to have some new regulation that is so broadly welcomed by the industry. Surely there must be some complexities or challenges within here?
Jo Cordner: Of course. Yes, there are challenges. The intent behind Targeted Support is to create value both for providers and consumers. But there are three key challenges worth highlighting because all good things come in threes.
So firstly, the direct marketing challenge, particularly where firms will seek to deliver targeted support by proactively engaging customers.
There's a real question around how that will work in the context of direct marketing rules, where customers have opted out of direct marketing services.
Next, vulnerable customers. To deliver Targeted Support, firms have to identify cohorts of customers based on common characteristics and also exclude customers who might not receive better outcomes from the targeted support. So, we know that there are inherent challenges across the industry, not only for identifying vulnerable customers, but also in assessing how to meet the needs of those customers.
So, there's a clear risk that vulnerable customers will be excluded from the better outcomes that Targeted Support aims to deliver.
And then finally, outcomes monitoring. So, a critical part of being able to meet the better outcomes threshold will be the effective monitoring of outcomes for customer cohorts. From the extensive work that we've done with firms embedding the Consumer Duty we know a lot of firms are still battling to get their outcomes MI into shape.
So, there's a very real possibility that some firms just won't have the quality of data that's required to prove to the regulator that they can deliver the required standard under Targeted Support.
So, to close out. What should firms be doing now to prepare for the implementation of Targeted Support?
So, for those firms who are looking to build Targeted Support services, they need to decide first whether they want to be early adopters of these services. So, there's some clear benefits of moving early. So being first to your customers to build that confidence in and loyalty to your brand and services.
But if early adoption is going to be your strategy, you really do need to move quickly. You need to be able to have a solution designed, built and tested before the authorisations window opens in spring next year.
But regardless of those timelines, all firms need to define their strategic position. So, firms need to be clear about whether this is really about improving outcomes for the broadest number of customers possible. So are we looking to deliver improvements to a sufficient level but across the board to improve that customer trust, understanding and loyalty, ultimately supporting retention rates.
Or are you aiming to go further and look at product and portfolio optimisation? So really narrowing down those cohorts to optimise outcomes for different cohorts and releasing higher revenues and margins in the process. For lots of firms, it's going to be somewhere between the two of those options, but it's important to have that strategy clear from the off.
So now the focus needs to be on building that business case. You want to be mobilising cross-functional teams to help really understand the quickest route to value.
And we believe that you need to be thinking about an agile approach to bring these services to market. So, prioritising which situations you're going to run with first and then implement a continuous test-and-learn approach to make sure that you're able to evidence that your approach is working and you're delivering those better outcomes.
Starting now will help you to build a robust submission for the authorisations process in March.
Guy Munton: Thanks Jo. I completely agree, there's a real need to move quickly, and there's a lot to get done in a short time for those looking to be first to market.
For me, the big takeaway is that this will deliver real benefits for customers and for firms. But there are some key challenges to work through before March next year. Having a clear strategy and making good progress over the next six months is crucial.
That's all we have time for today. Thanks for watching and we'll see you next time on FS in Focus.
