Deliver value for money while meeting the FCA’s expectations
Perceived value for money of financial advice is a core reason why so many consumers have become disengaged with the advice process. Phil Deeks, technical director, TCC looks at how advisers can respond to this issue, meet FCA requirements and bring more clients onboard
Value for money can be a tricky thing to define, and often means different things to different groups of consumers. However, it’s a phrase that is becoming increasingly common in the industry as the FCA looks to determine the value for money consumers are receiving as part of its objective to ensure that markets are functioning well for all participants.
In an ideal, well-functioning market, firms failing to deliver value for money would find their customers taking their business elsewhere. If competition isn’t working effectively, however, then value for money and customer outcomes can suffer. This was highlighted in the FCA’s Asset Management Market Study Interim Report, which showed the impact of weak price competition on investors’ returns and the value for money received. The issue is also apparent in the advice market, where the perceived value for money of financial advice and products is one of the core reasons why so many consumers have become disengaged with the advice process.
The FCA’s focus on value for money isn’t set to go away anytime soon. The regulator is looking to flex its competition muscles even further following both the Asset Management Market Study and the Retirement Income Market Study, which both uncovered issues around the perception of value and price competition. But it’s not stopping there. The Mortgage Market Study is another example of a live review currently underway considering value for money and competition effectiveness.
Despite repeatedly claiming not to be a price regulator, the FCA’s attention has turned to price, wrapped up in the concept of value for money. The concern lies in its potential to significantly impact consumer engagement, an issue the regulator is looking to tackle across the retail financial services industry as a whole. As a result, the industry is likely to see greater consideration of value for money within the FCA’s overall supervision of the market. This could also include an increase in market studies focused on competition issues given the clear link that exists between levels of competition in the market and the value for money of products and services.
Delivering value for money in practice
With the ongoing focus on competition issues and the impact on value for money, how can firms ensure they are consistently meeting the regulator’s expectations?
Value for money isn’t simply a race to the bottom or about offering the lowest cost proposition in the market. In simple terms, it can come down to offering a service or financial product that meets the customers’ needs, at a price they are willing to pay. However, brand perception also has a part to play in influencing customer’s view of value for money and ultimately their purchase choices. What represents ‘good value for money’ to consumers is influenced by personal preferences and past experiences coupled with their perception of the value of brand, which is why it is imperative to focus on what customers value.
In order to gain a good understanding of whether value for money is being delivered, firms need to ensure that they have a thorough understanding of their customers’ needs and what they value. This should be backed by comprehensive management information (MI) to demonstrate that the products and services continue to meet the customer’s identified needs and value drivers and are only sold to those they are suitable for.
Firms that have a culture focused on meeting the needs of customers and delivering the aspects they truly value are more likely to provide products and services that are deemed to be value for money. A positive, customer-centric culture, embedded throughout all areas of the organisation, is one of the key foundations of delivering value for money. Firms need to ensure that all business decisions are made in the best interests of customers and that the adviser-customer relationship is delivering appropriate outcomes. Firms should have an in-depth understanding of their internal culture and the impact it has on the outcomes customers receive, making any necessary changes to ensure that it continues to meet regulatory expectations and deliver the desired outcomes.
Communication is integral to demonstrating value for money. Customers need to have a clear idea of the products, services and benefits they will receive in return for their investment. Clear communication helps consumers establish the value of products and services and helps to lay the foundation for a positive, ongoing relationship.
Consideration of value for money is not something that can be done in isolation. It must also take into account the wider market in which a firm operates and the offerings and service level of its competitors. To gain a fuller picture of a customer’s expectations around costs, product features and service levels, firms should regularly undertake their own market research, utilise internal intelligence and benchmark their own costs against competitors.
Given the increasing scrutiny in this area, firms should waste no time in considering the value for money their products and services offer. Importantly, this should be backed by the collection and ongoing monitoring of comprehensive MI to demonstrate that they continue to meet customers’ needs at a cost they are willing to bear.
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