Just read the recent report from EY about the $500 Trillion
Consumer Centric Retirement Prize at www.ey.com/pensionsreport2015. Great report with some really pertinent observations in there.
Some I specifically noted (sorry rather long but it is a long report !):
·
There is broad recognition that the industry has
a long way to go, which I suspect needs to happen in line with the changes to
public policy, regulation and societal sustainability and the role of money.
The question raised about who underwrites the wellbeing risk of people I suspect is
one of the biggest issues of our time.
·
There is a major point raised around that in the shift
in the attitude from ‘paternalistic’ to ‘client centric’ means different skill
sets in both subject matter and management. At Financial Simplicity we have
seen this for 10 years now, where firms making such a shift to a customer
centric model need some very different ingredients. We notice that there are
just different characteristics of the CEO’s right through the organsiation. It
is difficult to pinpoint it, but some critical ingredients appear to include
high degrees of knowledge and competency, a business owner mentality and passion (in more
ways than just equity), and a higher appetite for ‘participation’ over
‘position’
·
the question of who pays for innovating and
developing the new infrastructure required for a consumer centric industry and
operating model is a really big one. My view is that this infrastructure
will have quite a different form from the last ‘generation’ and will be far
more ‘intertwined’ rather than ‘standalone’ product / organisations. I suspect
that amongst this infrastructure will be some very key components that will
almost be regulated to be used to support a consistent theme of consumer
centric outcomes. I aspire that Financial Simplicity or the techniques we have
developed around consumer centric investment management will be one of such
·
I think Figure 4 is great and believe (as
practiced) that 'Simplicity' (or rationalising complexity into..) is very much a
key tenant of the future in a consumer centric world
·
I really like the mention of the ‘all
stakeholder’ code of conduct and believe that this will underpin a form of
regulation. I suspect it also will closely align with the attributes of
organisations that successfully transition from ‘paternalistic’ to ‘client
centric’
·
the issue of consumers’ understanding the
relevance and roles of all those involved with their ‘wellbeing’ will be
critical to create, and sustain, a new era of trust. One could argue that
this extends beyond financial wellbeing also, but limiting it to such, I
suspect every organisation will need to how it is positioned in the eyes of the
consumers it ultimately deals with an what is it’s value proposition and cost
base
·
The point about wellbeing being the driver, but
how is it measured and monitored ? I think is quite interesting and also can
extend well beyond financial issues. I suspect we will see an increased focus
from the industry on broader issues than financial affordability and see it
extend into education beyond consumerism and hype
·
The point about the need for clarity for
alignment of interests is a key one, and always difficult to implement in a
world where there are stakeholders that one could argue have different
motivations than that of the consumer, such as shareholders in the companies’
that serve them. This is closely linked to the question about the funding of
new era infrastructure as clearly those who invest in such will be seeking some
form of return
·
There is a mention which I like about all stakeholders
to increase understanding of behavioral finance to increase confidence. I
suspect it moves beyond impacting consumer confidence also, but a necessity for
behavioral finance understanding in order to improve organizational culture and
ability to lead. Over the years I have become well aware of the conflicts of
staff in companies who are doing one thing in terms of investing for their
clients vs the way they would invest their own monies due to the difference in managing to 'mandate' vs personal outcomes.
·
In relation to the ‘digital’ advances, there is
welcome highlighting of the need for the encouraging of participation for
consumers and empowering to make decisions, ultimately implying involvement in
the decisions and outcomes that effect them. At Financial Simplicity we have
noticed that our client firms that practice this ultimately end up with much
higher client satisfaction levels and I suspect are helping their clients with
their ‘wellbeing’ beyond just managing monies.
·
There is a really pertinent point about what is
the purpose of the financial ‘wellbeing’ of consumers which spins out plenty of
thoughts as to what is the purpose of the pension / investments industry also.
I suspect that governments are going to really have to think this through,
especially globally now given the global flight of monies, and position
financial and economic wellbeing in the context of sustainable and healthy
societies.
·
In the governance section there is a reference
to the need for ‘an integrated and adequately empowered fiduciary framework
that covers the entire value chain and it’s key stakeholders to maximise
alignment and support confidence’. This lies very closely to the point about
consumers understanding all the roles of people involved with their financial
wellbeing and the shift from paternalistic to client centric propositions and
cultures of running such businesses. My view is that this will ultimately come
down to a more formulaic value chain model with some very common components
that define the fiduciary framework. Many suggest that Financial Simplicity
could be one such component
·
I was amazed on Figure 19 as to how few rate
themselves as being ‘easy to deal with’. I also liked the framework in Figure
18 that hits with some of the core issues at the heart about avoiding negative
emotions and building on positive ones, a stark contrast to the paternalistic
model. This is something that we have had at the core of Financial Simplicity
for over 10 years as we are reminded by our clients that making investment (or
other financial) decisions is quite statistical in it’s outcome, but very
emotional at the point of decision.
·
The point about the importance of digital in
making this transformation from paternalistic to customer centric I think
cannot be underestimated, and was amazed (ie on the low side) at the chart
about participants perspective on such. Customer engagement and customer
experience is THE future for satisfying the new consumer and will iterate the
advances that need to be made here, for which without I believe that firms will
just be left behind.
·
There is a point about the cost of regulation
being high and how this impacts the ability to innovate. This is undoubtedly a
major factor deterring progress and in Australia we are seeing some really
welcome initiatives being taken in an attempt to unlock this barrier, such as
the ASIC Start Up Innovation Hub. My guess a lot of the issue here is that
regulation has to be designed quite broadly for good reason, however the lions’
share of servicing consumer with wealth accumulation strategies can be quite
simple to regulate if they stay ‘on piste’. I suspect over time we will see
some ‘slim down’ regulation to support consumer centric initiatives come into
the market easier as long as they ‘fit in the box’, and for those propositions
that deviate considerably (such as highly leveraged complex products) will have
more regulatory overhead to deal with. It will be interesting if such
strategies and products then are attractive with such overheads compared to the
more simpler ones
At Financial Simplicity, we have been both thinking and
developing techniques and technologies for over 10 years to help firms with the
shift from ‘paternalistic’ to ‘customer centric’, and this report from EY I
think highlights much of the issues associated with achieving such. Ultimately
I am of the view that this shift will not be achieved alone, firm by firm, but
will take a coordinated approach across all stakeholder groups with tight
consultation with consumers in a very ‘agile’ fashion. If you are interested,
we will be happy to talk about it.
