Turning Consumer Duty into business value

Hello everyone. Welcome to this webinar that we are calling "Turning Consumer Duty into business value." My name is Ricky McKinney, I'm a Risk Director with Royal London, and I'm really pleased to have alongside me Christian Markwick from Verve Group. Christian, do you want to introduce yourself to our audience?

Sure. Morning, Ricky. My name is Christian Markwick. I head up the adviser support team within Verve. We were an outsourced service provider who effectively help businesses, large and small, with anything relating to, I guess, how they provide advice to their clients. So, anything from admin to power planning, to compliance, to training. I think this strap line we have is the only thing we don't do is give the advice. So yeah, pretty much everything that firms need right now.

Cool, cool. Just a little bit background on me. I'm a compliance dude like yourself. I've been with Royal London 12 years. SMF, 16. CF, 10. Yeah, and I guess Royal London has a strategic objective to try and support the advice sector generally. We want more advisers in the business, giving advice to more clients as you would call more customers, as we would call them, so we're not too far apart, right? And I think that's the point of today. Royal London, a couple of years ago, started some new research on the meaning of value. We realised that, you know, there was a job to be done, and trying to share some thinking in a humble way with advisers around what value really means and how you can turn it into commercial value.

And the second wave of that research was out recently. And as we were talking to advisers during the research, we realised that there was a desire to do a bit more around the practicalities of value and linking some of the elements of Consumer Duty and also some of the FCA's regulatory interventions, for instance, around ongoing advice services. So, we had this brilliant idea of turning to yourselves and together producing a brief guide that we think just helps push the conversation along. So, thanks for getting involved in that, Christian. You guys are the people that turn it into practice in a day-to-day basis. And the point of today really is just to pull a couple of threads from that research, from that guide, but have a conversation, right? So, it's not a readout of slides, it's not COBS, 2.3.1. It's just two, I was going to say nerds, but maybe, you're not by I am, just talking about it. We want to support advice. As do you you're at the coal face, and we did find some uncertain remains after the FCA review of ongoing advice services, it was hugely positive. And the FCA said itself, the vast majority of views were done, and that's testament to the quality of the work that is going on in the profession. But, and you know, this may be controversial, it still felt like there was some unfinished business, if you say it that way, you know there was some regulatory activity around a couple of the bigger firms. And I think the FCA themselves came out and said afterwards, it was very much a review of delivery, not of quality, and left firms with some work to do. So, we thought we'd dive into that.

This session does come with some other outcomes, so I'll just read them out for you just now. We've talked about it a little bit, we're going to cover ongoing review, going to recap the broader regulatory context of the duty. And I think what we're trying to do, really, is try and link the regulatory risk side of things with running a business. And again, it's a humble contribution to some of the debate around this. But I think at the end of the session, we hope that you'll at least have a couple of tools to go and dive a bit more into the guide, into the Meaning of Value, maybe contact verve and continue progressing your journey and developing your businesses. So that's enough for me. Christian, could you set the scene for us on where the regulator is?

Wow, what a question. How long have we got? We've obviously got the duty, and we've now got outcome-based regulation, and there's been a huge amount of noise from the regulator in terms of, I guess, their shift to how they're wanting to do things. We've had consultations on disclosure, growth objectives, simplifying the handbook, reviewing of FOS. You know, the list goes on. We've obviously had a slight change of approach coming out of Westminster in terms of that whole shift for growth, which has meant that, I guess some of the things, or some of the larger areas that we were expecting to come out this year haven't necessarily come out with the same force that we were expecting. That said, and if we specifically just look at the recent ongoing advice review, there was so much noise being drip fed out over the previous 12 months in terms of what we felt the regulator was finding, little snippets coming from journalists that were talking to, you know, the 20 largest firms. But actually, for me, on from what we saw with lots of firms, there was enough noise in there for people to really go and sharpen their pencil anyway. So, a lot of the stuff that the regulator came out with wasn't necessarily news, or newer news. It was, I guess, a reconfirmation of some of the things that we already knew. But actually, I think there was enough scare going around, that people had actually almost assumed that this is what was going to come out of it. And whether they were or weren't, already where they wanted to be, they've certainly sharpened things up a little bit in terms of that whole process with regards to the ongoing reviews.

You know, let's  not kid ourselves in what the regulator's done with Consumer Duty is. Here's a bit of a sledgehammer to crack a nut. You know, they were hoping - They were hoping RDR was going to achieve a lot of what they wanted in terms of what clients would being charged for an ongoing service. Their method, too, was meant to come along and really sort of shout and put it in front of clients, neither of which really had the impact that the regulator was looking for. So, I guess this is then taking it that extra step further with regard to okay, now really demonstrate the value that your ongoing service and what a client is paying you is bringing to the table for the client. And I think that's where firms and obviously, hence the reason for today, and hence the reason for the paper, just really need to start to think about what that means for their business. And the issue that I see on a regular basis is people either making an assumption or trying to be like someone else, whereas your business will likely be probably slightly unique in terms of the way that you operate. So, I think that's the real challenge for firms as well: How do I articulate the value that we bring, which might be different to the value that I mate, who I work with, or someone else who's part of the network, or someone else who you know that we're talking to on a regular basis. They're all going to be slightly different, I would imagine, just because of the nuances in terms of what firms do. So, we'll talk a little bit about that as we work our way forward.

Great. You know, it's interesting. I was thinking about RDR as well. You know, that was seismic. And then, almost as a fast follower, you had all the pension freedoms, interventions, and we've been on this arc of continual policy and supervision around, I guess, at retirement, in retirement, things like pathways. We had auto enrollment, all these interventions about retirement risk warnings. And to my mind, the retirement income thematic review was the most recent of that long arc, and it took place just as a time as we have this other shift, which is the duty and outcomes-based regulation. And it's been really striking, I think, over the last few months, watching the new government and the regulator and the new strategy from Nikhil Rathi focus on growth and also a new way of supervising financial services. This shift to outcomes-based regulation, and it just struck me, there's such an opportunity, if you can move to a model where you have to just show the good that you're doing, the promise from the regulator is we won't need as many prescriptive rules. And I just think that's maybe lost a little bit because there's so much noise, but it just feels like an amazing opportunity. If you are running an advice business, and you have real clarity around you know the value that you bring to client bank, do you think that's fair?

I couldn't agree more. I've said this for the last few years now that for me, there's nothing about the Consumer Duty that isn't just bloody good business planning. Now, as much as we hear some skepticism amongst some firms with regards to the amount of data the FCA is looking for, the amount of reports and why do we need to do this when other industries don't. We're in a regulated industry. Those industries possibly aren't. But equally, I can't think of another industry or another market that's out there that hasn't gone through an exercise of understanding what their target market is. Who are they trying to work with? Why are they trying to work with them? What value is that consumer going to get from your product or your service? How do I ensure its profitable? How do I ensure it's being delivered as – you know, all of these things. When you start to break it down, you go, well, actually, that's just for business planning. You know, you think about the products and services that you're delivering, you think about the value that it brings, or what you're charging, and you think about ensuring the consumer understands it and gets value from it, and then you start thinking about the channels of support. Well, that's pretty much every industry in the world, but I think financial services, as a profession, probably hasn't needed to do that previously, or certainly hasn't been asked to do that, and therefore it feels new, whereas I think if we start thinking about this from a business planning perspective.

I think there's three metrics that firms need to really hone in on. For me, when you're looking at this, is you've got to hit 3 things: is it right for the consumer? Is it right for my business, and is it right for the regulator? Will all three be happy with this? If you're only ever hitting two of those, which, in my experience is quite often the case, then it's not going to work. You know, let's flip that in its head. If you say, well, actually it's right for the consumer, it's right for the regulator, but actually it's not right for my business, well it probably means you're charged with too low, you're not profitable, therefore it's not going to work. Equally, if it's right for the business and it's right for the consumer, but it's not right for the regulator, or you haven't documented it well enough. So you start to go, okay, so how do I hit these three pillars to ensure that actually I've got, I've got confidence, and hate to say this phrase, but future proofing the business and future proofing the on your ongoing reviews, in reality, for me, this is about looking forward as a business and going, how do I just keep that one step ahead? And as you've said, if firms can do this and demonstrate to the regulator that they've got good outcomes, then they're likely to step back a bit here. They're not going to need the same level of supervision that we've had over the last 15 years, because actually, we've moved to good outcomes, and we can demonstrate we're delivering good outcomes. So, it just seems to feel right.

Yeah, I'm always conscious, though, as someone who makes a living from compliance of, you know, beating this drum that says it's just good business. Because, if I'm being really honest with myself, a lot of the regs, I've worked with over the years, there sometimes is the point about the three areas have sometimes been alongside business practice and I do genuinely think, from what we can see just now in terms of the consultations around disclosure, in terms of Nikhil Rathi letter back to the Treasury, around, things can do to unlock growth. And even in terms of some of the steps set out in the work plan and taking the duty forward I can definitely see the handbook getting slimmer, and I can definitely see some of the prescription around some of those steps that you have to follow to take a client through disclosure falling away. And I guess the caveat is there's a requirement to demonstrate what's going on, and there's a need for data, I guess, you know so it's not, it's not a free pass, but it's definitely a shift.

No, it's not. And, and, you know, we've got, what, 10 minutes now, first time we mentioned data, I think that's the big shift for me, and obviously it was a big part of Consumer Duty, which was that the regulator is now going to become a data led regulator. But equally, the only way that we're going to be able to have a lighter touch in terms of this is to have MI, is to have data to actually be able to show what's going on. If you think about the FCA, the thematic review into retirement income planning, it was so much data, and for lots of firms, it was a sea change in terms of, we don't actually record that, or we can't show that. Well, if you can't show it, then we can't prove the outcome-based regulation. So, I think that's the big thing for me, is firms need to really understand, first of all, where they can get this data. Is it your back-office system? Is it your platform? Is it providers? Is it something else that you're using, there's so many, so many different pieces of software out there now, but actually, how are you going to have this? Because if you don't have the data, then, then we know the rule, if it's not written down, it didn't happen. So, it's a case of say, well actually, how am I going to ensure that I can demonstrate that good outcome, and equally, where things aren't working? And again, let's be really honest here. One of the key things about this is actually being clear on what is and isn't working.

You might have a certain type of client, certain segment of client, certain service that's not profitable or that's not delivering what it needs to do. But first things first is knowing that. then you can start to show what you've done to improve things. You know, I don't think there's anyone out there that as part of the work they did in the run up to Consumer Duty that identified some gaps, some areas that weren't quite as good as they needed to be. There was no expectation that that needed to change overnight. It was then a case of ‘Okay, now, build a plan’. Let's see what you can do. Who are you talking to? Are they asking you questions in terms of, what could you guys provide us? So, they talking to us. They talk into their back office. Now, there needs to be a lot of collaboration in this, in terms of saying, well, how do we all come together to actually provide the data that firms need? And the data exists as long as you as long as you record it, and you ask the right questions.

No, great point, right? I mean, I love talking about this stuff, because it's a way of avoiding getting into some of the detail which isn't my specialist area, but let's dive into the ongoing services review. So, my recollection is a few years ago financial advice market review, the FCA made a point about the shift to ongoing revenue models, I think talking about 80% and also 90% of new clients go into an ongoing relationship. To my mind, in in retirement planning, at least, that's the best way to look after someone is to is to be their coach and their mentor, their adviser, through what's, I think the phrase from Bill Sharp was the nastiest problem in finance, right? So, that felt appropriate. But obviously the FCA is concerned that with such a big swing, is it something that we should make sure is being delivered appropriately? So, I think it set the clock ticking on, on a level of interest that culminated, I think, the retirement income thematic. There was 200 odd firms, 231 I think that that had some level of ongoing review that wasn't delivered. And then I think we got the information request into the largest 20 firms. And then, I think in February we got, the output from that. So just appreciate, any thoughts on what the FCA concluded, and then, maybe we can dive into, like, what do you do now? If you're sitting in the position where you've read the high level, and it was quite high level, I think the output any, any tips on what firms should do now?

Yeah, I think there's a, there's a couple of points here. So, the regulator, as you say, said they were broadly comfortable that firms were trying to deliver an ongoing review. They didn't delve into the detail necessarily of what all of those reviews are. But I think if you, if you think about this, with definitely two hats on, but potentially even the three, which is understanding what the regulatory obligation of a periodic suitability assessment is. And it is now a periodic suitability assessment that is a big difference. And that was a market. That was a shift change from method too in 2018 for anyone that wasn't around prior to 2018 there was only ever a requirement to write a personal recommendation for a buy or sell, whereas actually a hold became a recommendation, which is what you have is absolutely fine to meet your objectives. So, there's a requirement to carry out that periodically assessment, which says, don't change, everything's fine, carry on. So there's that, that piece there, which, I think if we go back a step from that is, is if you're telling a client that what they have is absolutely fine to achieve their objectives, are the objectives clear? What are we actually telling them was fine? Are we telling them performance is fine, the charges are fine, the product is fine. Or actually, are we telling them they're on track to achieve their objectives? So, something we've talked about for the last couple of years is that we still see too often that clients' objectives are still too wooly. It's not documented well enough, in terms of what you're trying to do for clients, or what why they're working with you, and why they're paying you, the hundreds or thousands of pounds a year that they're paying you, which again, then makes the demonstrating good outcomes difficult, because unless you can show you've hit their objectives, how to demonstrate you're delivering good value. So, I think there's a there's a couple of things in there that firms can actually get better at, in terms of having those really strong client objectives. And I'm not talking about a 30-year-old being able to articulate their retirement plans. That's unrealistic, but what is it you're doing for that client, and how do you demonstrate they're getting something from the relationship?

So, I think for me, there's the two elements, what's the regulatory requirement? And then how do you deliver something that a client wants or needs? First things first on the back of the FCA's review is carry out an audit. Have a look at the reviews that you were required to carry out for the last 12 or 24 months, and how many happened? How many didn't happen? Why didn't they happen? Do you have a certain type of client that's not necessarily engaged as well as others? Is it that the delivery? Is it the mechanism of delivery? Are we trying to get everyone to see you face to face when they don't want to? Are we trying to get everyone to do it online when they want to? You know, actually understanding the needs of the clients. And equally, then, from the business perspective, is once we know what we need to do, and once we know what clients are asking us to do, then we can ensure we're doing it in a way that works for the business and works for the clients and hits the regulator's requirements. So again, I think, for me, and again, something we've seen a lot of over the last probably three or four years, even on the back of COVID, is firms adapting their whole approach to engaging with clients. I've said this for five years now, prior to COVID, I think there was a, probably a mindset of, if it ain't broke, don't fix it. And obviously, in March 2020 it broke. You couldn't do what you'd always done. You couldn't see all these different clients in the way that you'd always done it. Possibly the platform solutions or the investment solutions you were working with didn't carry on working in the way that you wanted them to, in terms of needing to engage with clients. So, I think even on the back of that, a lot of the stuff had already started to happen. But actually, are you comfortable that the ongoing service review that you are offering clients is working? How many clients aren't we able to engage with? And do we need to have a different approach for those?

Just again, on that point: not in all cases, there isn't a requirement to actually meet a client to carry out a review. And I think this is a misconception that says, ‘oh, we must see the client face to face’. Well, first of all, you don't need to see them face to face. Secondly, you technically don't need to see them virtually. There may be some client with really simple needs that you can ask them to update their fact find and update their circumstances and update their risk, and you go, actually, everything you have is absolutely fine. We're really comfortable that there's no need to make any changes because you've received that information, you can't do it on an assumption. and say, well, if you if you've not told us anything. So again, it's understanding exactly what your process is as a business to be able to carry out that periodic suitability assessment. Because if you're going to tell a client that what they have is absolutely fine for them, you're going to need to do it with up-to-date information. So again, really understanding how you're going to obtain that – is it prior to the meeting by asking clients to update their fact finds using client portals or pieces of apps or pieces of software, will you be doing it in the meeting? Again, what different approaches do you have for different clients? Because I don't think a one size fits all necessarily works.

Yeah, great point. I think when I was looking back through that, through the output from the FCA, it struck me that it's the best thing you could wish for, because it's generally an endorsement that things are going well. There's no systemic issues, and there's a nudge towards better practice, if you like, to manage the regulatory risk. But I think there's some business stuff in there as well. So, the FCA to acknowledge that the COBS 9 thing you talk about, and I know I said I wasn't going to talk about COBS, right? But you know where we go, COBS Nine method, and then you've got COBS 6 adviser charging the FCA, I think, themselves, have said, like the rules could do with, a refresh, maybe having a look at them, because the world has changed, changed post COVID. And what is a review, that idea of PSA. But there's scope for other activities as well, for ongoing advice charges. So, something is welcome that the FCA is going to have a look at the reviews. I think it's also a nice nudge when you know the outcome of the review says there's 15% where you know advisers did a proper job trying to get someone to take a review, and maybe they didn't engage for whatever reason or didn't want one. And for me, running a professional services firm, that would make me think I'm in the business and looking after someone, and 15% of them maybe don't engage. So that's something maybe to look at in terms of what's the best way to honor the contractual obligation. And I think that's what the FCA is saying. There's a contractual point, and there's a regulatory rules point, and failing to meet the contractual point would be, I guess, failing to meet the duty obligation. It's that point we're making about good business practice. So, I thought it was, it was a really useful conclusion, but I think there was some nuance in it.

Yeah, there's some nuance. And again, as we've just said, I'd be having a look at how many clients didn't engage. Are there any themes? Is it, if you've got a multi-adviser business, what are the percentages for each of the advisers? Is it how the advisers articulating the service proposition and what the clients meant to get out of it? Is it that actually, and I've seen this recently, where a firm was actually sending clients update of valuation, full document prior to the meeting, and funnily enough, the client's grown don't need to meet you now. Is that? But I want to meet you. I need to meet you. So actually, just thinking about, what are you presenting to clients prior to that meeting for them to want to engage? What percentage of clients is it we, I know we're not going to, we haven't got into segmentation yet, but is it a particular segment of clients really understanding the approach to see, actually, is there something about what we're doing here that isn't working? You know, getting feedback from clients? So yeah, all, all of the above in terms of different approaches, to really hone in on that, trying to reduce that 15% down to one. There should be, realistically be one or 2% of clients that in any given year aren't looking to have a review. And then how do we manage that? How long do we let that continue? Is it case of, well, actually, one year we'll, we'll do a, we'll do a PSA based on previous data and then thereafter we say, actually, if you're not engaged with us, then we can't carry on because we haven't met our contractual obligations. We are doing what we need to do. The FCA haven't put a number on it. They've said they're not going to put a number on it. It's down to firms to decide. But again, as you've said, for clients not engage them, what are they getting for their money?

Yeah, I think I read a couple of interesting quotes. One of it was a firm that had such an automated billing system that if a review was missed, there was a refund. And it felt really quite a constraining system for the realities of, you know, how a lot of smaller advisers in particular might run their business and Phil Billingham, who's always sensible, made a good point about the work doesn't happen once a year in this review point. So, yeah, I think it was interesting. We got into it, and it maybe leads us into that idea of, what is value? I think fair enough go and do the audit piece, but in terms of looking out to the kind of medium long term of your business and then dealing with the duty, I think it's just interested in and how value starting to become a major concept.

For me, this really starts with the whole, I guess, segmentation piece. And whilst there is no regulatory requirement to segment your clients, there is a requirement within the duty to demonstrate you're delivering for the consumer's needs. So, if we don't understand what the consumer needs, then how can we demonstrate that we're delivering it and the value it brings. And I think for me, just on that whole segmentation piece, there are so many different ways that we've seen firms try to segment their clients and really sort of thinking about the different needs of different clients, quite a common, popular way is to look at it based on life stage, and looking at, where clients are at, and how do their needs differ?

And I guess so, just to put some context around this, because I've had a few heated discussions, so we say, with firms in terms of segmentation. And, you know, it's not necessary and it's all nonsense, which was probably a polite way of putting some of the conversations. But I think for me, is if we're saying segmentation isn't necessary, we're saying that every client has ever has the same needs. Well, no, we're not, therefore we need to think about those needs. And something that I know has been covered in the paper is actually you are now a manufacturer of your service proposition. No one else has told you what your service proposition needs to look like. Therefore, it's for you to decide how you've built that. So, you can look at the life stages, so accumulators, pre-retirement, in retirement, later life. You can look at, clients with certain financial objectives. You can start to look at behaviours. You can look at, obviously there's vulnerability in that. The other one for me that I'm seeing work really well in the in the real world is, is complexity. A client with simple needs probably needs a simple service, probably needs a simpler solution. Probably we charge a bit less. Clients with complex needs now need more from you.

Now it might be that we're talking about, and again, this comes back to the whole business pieces. Are you classing your business as a general practitioner? We've got clients of all ages, all types. We say yes to everybody that you know comes through the door. We're never going to turn a client away, which is wonderful, but it's going to require a lot more in terms of the documentation. It's going to require you to look at well how do we identify the needs of the different types of clients we work with and then deliver the good outcomes and the solutions for them? Whereas, actually, if we, if we're a bit more nuanced and we've got more of a niche target market, then we can really hone in on the services we're delivering for those, those needs. So, I think for me, it's going back that step and just going, who are we working with? And we'll use the FCA speak of target market, but let's be really honest. Who are you working with? What did your existing client base look like, and who do you want to work with going forward? What exercises have you done to look at where your niche is? Where is it you add the most value? What is the, I guess, the sweet spot in terms of the clients that we know that you go that, yeah, those are the ones that we deliver most value for? And then it's building a service proposition around that. Because if you know you're working with the right people, it's much easier to demonstrate that you're hitting those objectives and you're, meeting their needs, which, for me, then brings back into the back into play of well, actually, it's much easier to demonstrate value when we're really honed in on, I guess, the outcomes those clients are getting. And you know, there's the products and the services that you're going to be delivering. How we are we evidencing that the consumers are understanding the work we're doing? And I'm not talking here about them understanding the technical side of things, and being able to articulate a chargeable event calculation or a taper down your allowance calculation. That's not what we're asking the consumers to understand. What we're asking or what we're suggesting they should be able to understand, is, what are they getting from the money they're paying you for? Do they see value in that? We'll go into a little bit further in terms of the, some of its tangible, some of it's not tangible, but actually just making sure that our consumers understand the work you're doing, and I guess what they get from that. I think it's going back that for me, the whole Meaning of Value and demonstrating value, for me, you've got to go back a step first, which is, how do we demonstrate that we're working with the right people? And we've built a service proposition around the needs of the different types of clients we've done based on how we've chosen to divvy them up into the different segments or cohorts, or whatever we're talking about.

Yeah, there's some brilliant points there. I mean, it kills me that we talk about manufacturers and distributors like, I mean, again, your kind of legacy from European regulation, right, which is a very different model, and that, you know, a lot of bank assurance, if you like, leads to this distributor mentality. But I do think there is something in having a manufacturing mindset and manufacturing a service. And so, what's your service proposition? And then you get into the professional services flywheel, I think, which is, there's a Daniel Crosby, you know, the guy does podcasts, has this phrase, and he's American, so he says nitches instead of niche, he says nitches makes riches. And it's a really good business tip that if you get really deep into one segment, you can really get this flywheel going where you become really, really okay with what that target market needs. And you can, you know, if I think it's you know, advisers that focus on maybe the NHS, NHS medical professionals. They understand the pension scheme nuances. They understand some of the some of the benefit structures and the income protection, things like that, and because you get really good at it you can operationalise efficiency, you can delegate a lot more, and actually you can attract a lot more referrals. So, to me, the duty requirement to understand cohorts of your customers and the outcomes they get is cheek by jowl with business strategy around how much you want to focus on a cohort to get commercial value out of it, and I don't think we've had regulation like that before. So that felt to me, this idea of segmentation being the spine of your business. I've had conversations with advisers well, have told me, it’s nonsense. And I get it if you're really on top of a smaller group of clients, and you know them inside out. But I think if you're trying to grow your business, then having some consistency around segments is a regulated requirement, but it feels like it's good business sense as well, right?

Yeah, and I think you've hit the nail on the head there. If you deal with a very niche target market, and you understand that target market really well, and you've built your business around that target market, and you only ever work with that target market, and you've got your marketing strategy and proposition and everything is around that, brilliant. But the vast majority of firms haven't, and over the years, they've built up clients of all shapes and sizes with different needs. Normally all focused on retirement income planning at some point in the future that they're building and building wealth to build to then live on it for the rest of their lives. But that's not always the case. But as you said, you're going to have different clients with different needs along the way, you know. And again, I'm not talking here about treating everybody the same and trying to build a really heavily documented service proposition for clients with very simple needs. The whole point is, if you, if you can identify that the client's needs are really simple, then you can probably service them quite simply and hopefully for a lot less money. That, again, I think is part of this whole piece for me is how many people have actually carried out a cost of a cost advice exercise, cost of manufacture? You know, until you know how much it's costing you to bring on those clients and service those clients, well, how can you be sure they're profitable? So back to my three pillars, how do it's right for the business? How can we start to demonstrate well, how have we arrived at that charging structure and fair value, so meeting the regulator's requirements and then actually understanding the clients are getting what they want out of it, and you are able to target those clients.

We've seen a lot of firms as part of this exercise identify they had a cohort of clients that weren't profitable. Thankfully, lots of them have gone, well, we don't, we're not just going to turn our service off. That's not what we're about here. We need to find a more efficient, cheaper, tech-based, whatever you want to call it, way of working with these people, because, actually, we don't want to turn them off. But at the moment, the way we've operated, yes, it brings in turnover. When you actually look at it, it costs us more to deliver the service. So, we need to find a, you know, a more business-efficient way of dealing with these clients. Or in some cases, we've seen firms use those cohort of clients as a training academy, saying, actually, there's clients here with fairly simple needs that we can't really justify doubling the cost. But actually, we've then got some clients that, if we are bringing through younger, more inexperienced advisers, that actually they can start to develop their skills by working with these people. So, whilst they're not profitable, we're delivering a service that they need, and actually they're serving a purpose for our business, which is helping us to develop the next, the next tranche of advisers that are coming through and so forth. So again, I think it's just sitting there and looking at your you know, back to our core concept, sat there, looking at your business and going, actually, what have we got here? Who are we working with? You know, what are we delivering? How are we delivering it? Is it profitable? What are our options? Can we use a more tech-based approach? Could we be using client portals? Could we be using automations? All of these things that come into play, but until you've really done that exercise, it's very difficult to get to the point, which is why I keep on, you know, I bang the drum every time is for me, all of this starts with the segmentation, you know, and –

Were you going to say, product. Are you going to do that? Yeah, I think the manufacturing mindset piece, we're product provider. We have to, internally, be really careful about cross subsites, because we have with profits members, and obviously we're mutual, so we have to think about, valuing around for the whole membership. So, we focus a lot on unit cost. And I think the corollary and the advice professional services sector is cost to serve, and you have to put the legwork in to understand which areas are costing you. You have to have the tracking mechanisms for the work that you do, so it can feel like a tax. But I do think where it gets you to is a pretty sober view of which clients are profitable and which are less so, and the services you provide and the value they get from them. And one of the worries I've got is that you're sitting looking at all this stuff coming at you, and you think the ongoing advice review and annual reviews have to be mega. I can't service as many clients. And for me, that's just a terrible outcome, and I don't think it's one that the regulator wants. So again, maybe we can dive into the scope of the service and how you how you actually communicate that and deliver it. Because I think that's key, for me, the scope of what you do, because you could probably be delivering so much value that it's negative on some parts of your business. So, anything around client agreements and scope you want to get to?

So I think there's a couple of pieces here, and I don't disagree, is, I think people have been, you know, have been worried about under servicing clients, and therefore have been over servicing them, or not necessarily, doing it in the way that's going to meet the requirements of the regulator. But if we start to think about, let's go back to that segmentation piece. Once you understand exactly who you're working with and you've identified their needs, you then build a proposition around that which is, and the analogy I always use is right client getting the right service with the right provider, with the right investment solution at the right price. But nice map through. When I've done this exercise, and this has been a conversation for me over the last five years with I don't even want to think about how many firms, once they've done that and they've understood their cost of advice, the first feedback is, why the bloody hell haven't we done this sooner? Because actually, now I'm starting to articulate the business model that I've always wanted, which then gets turned into your client agreement. Because your client agreement isn't, yes, it's a legal document, and yes, it's a contractual document, but actually it should be the first piece that actually articulates who you are, what you do.

So, the first thing clients will be able to understand from that is, what are they going to get from you? What can they expect to receive from you as a service? And then, roughly, how much are you going to charge them as per the fee agreement? So, I think really, it's firms understanding what does the current client agreement say, are you delivering it if you're not delivering it, why? Which then takes us back to that piece in terms of, are we trying to over service clients? Have we got the service proposition right for their needs? And then just really being clear about what is it you're going to be charging the client for? You know, are there areas that aren't included in the service and in the clients are going to need to pay extra for all that is out of scope. And actually, this isn't something we're able to offer you. So I think it's for too long firms' client agreements have just been this horrible compliance document that's been written by compliance and legal and you put it in front of the client with ‘Can you just sign this for me, please?’ Whereas actually it should be a you go, this is who we are. This is what we do. This is, this is my way of telling you what my business is, what we're going to be offering you, and I'm really pleased to be going through this with you. Forgetting the fact that, yes, it's got some regulatory context to it all. But actually, for me, it's the biggest sales tool you've got when you first meet a client, because you're actually showing the client who you are, what you do, who you're regulated by what your charge is going to be and what they can expect to get from you. So, I think a real good on the back of all the things we've talked about, a real good review of the client agreement. You know, a good, strong client agreement really starts to break down everything we've just been talking about, and it just becomes, you know, the even the FCA said themselves, it's good practice, to have all of these things articulated in your client agreement, reducing the ambiguity. Clients reading it, but not really understanding what it means. It's not really helping anybody.

Yeah, and I think about, advisers I know that, have clients they've had for a long time. And I think, I think, because the nature of the relationship, you can fall into some informality, because you just know, and they know, but just being really like you say risk and compliancy about it, the informality, it creates some ambiguity, which can lead to liability. And the liability may not crystallise, but people that are ensuring your business, or having a look at it, or in the future maybe you want to, sell your business or pass it through. They'll look through this lens of ambiguity and liability. So, it makes sense to just revisit the client agreements. And I think the service inflation one is, is a brilliant point, because it's not necessarily in anyone's interest to do lots of reviews every quarter if the solution lines up with a lower, lighter touch. And again, that's just knowing the client, bank, knowing the channel, potential vulnerability. So yeah, I think that's great advice. And it comes back to, I guess, charging and how you structure that. Any thoughts on some of that piece?

Yeah, there's a couple of things that, and I think it leads quite nicely to say about in terms of the ambiguity and the consistency. Not so much now, but historically, we used to see charging structures that said up to 3% initial, up to 1% ongoing, and then you put that in front of a client as a client agreement as a client's going okay, so how much? Am I at 1% or 2% or at 3%? am I going to be charged 0.5, 0.75, or 0.1? And what you might then find is that different advisers in the business will interpret that definitely themselves, which, well, I don't feel 3% is right for that client. So again, it should be really clear. if your client, if your needs are really simple, we will charge you X, if your needs are more complex, we'll charge you Y. Needs are more complex again, you're going to get. So again, a client should be able to look at that client agreement and go, I can see me on there. I can see where I fit into this. And this is what I can expect to be charged and what I can expect to get in return. And I think then it also starts to lead into, I guess, the cross-subsidy side of things. What is it? What are there any areas where there's going to be cross subsidies? there's a really good analogy that I saw, or someone said to me a number of years ago, they said, look, we all know. And this was pre consumer duties, we all know. If we put 100 of our clients in a room together, and we articulated the services that we deliver to those, those 100 people, the 10 at the front, who are being charged the least, would go 'That's amazing’ because the 10 at the back are paying for it. And he said, We know that's not right, and that's what they that's where they were at as a business, and what they tried to get away from, which is, actually, we've now got a much more robust charging structure that we know that the 10 at the front are paying the right amount because the 10 at the back are also paying the right amount. There isn't this, they're paying for their service. Yes, okay, and I still don't think actually having 80% of the percent in the middle being charged the right amount bang on is wrong. But equally, how do you start to look at these cross subsidies and start to mitigate them? So again, really starting to think about, does everybody need the same type of cash flow, you know? Or actually, are you over delivering to the clients with simpler needs, which then means the clients the top, are paying for it? You know, does everybody need the same strategy? Does a client with simple needs who's still in an early accumulation phase need the same amount of detail as a client who's within two years of retirement with multiple tax wrappers and a very – No. So again, how do we start to think about well, from a business perspective, we need to charge people the right amount of money from the regulatory perspective we do, and also, for clients to get that value, we probably need to ensure that we've looked at what we're delivering.

I was just going to say, AUM models, they have low salience, so everyone's comfortable with them. I think our Meaning of Value research showed that clients would be interested in different charging models. We'll just leave that out there. But I think that life stage segmentation model is really interesting for that, because that aligns the advice proposition, maybe with the service proposition. I always think the cross subsidy is a feature, not a bug in financial services. It happens everywhere. And I think the FCA themselves have said the comfortable cross up stay, but everyone has to meet the value bar. So, I think you then have optionality around if you can find a segment where you can get the cost to serve down and there's still lots of value. Maybe there's margin in there, and you can go after a segment, I think meeting the value bars is probably, key.

Just getting into value, then. Defining it, measuring it, tracking it. If I can be a wee bit controversial, I've seen some super limited articulations of value, pretty much being a charge, the same as the practice down the road. I don't have many complaints. And I get decent trust pilot, just from a product provider perspective. And I know it's not always welcoming product providers talk about this stuff to advise us, but you know, we've been, subject to outcome tracking regulation, if you like, value tracking through independence governance committees for a few years in workplace pensions, We've had the assessment of value requirements in asset management, and even last year, thematic review on outcome monitoring as the duty on providers. And the journey we've been on is around benefit tracking, not just cost. So, you could be an inefficient business and still be, not making too much money, but still not delivering value. So, we think increasingly around tracking the benefit to customers. But any thoughts on that kind of identification measurement piece?

Yeah, and I couldn't agree more. So, first thing I'm going to say on this is profit is not a dirty word. Okay, we've already identified that the business needs to be profitable to function, equally, The FCA doesn't mind being profitable because it means they're less risk of not paying fees and doing things they shouldn't be doing. That said, we've just got to be mindful of, I guess, how much profit. As you've just said, lack of complaints, charged the same as everybody else, ‘I don't get clients leaving me’. Well, that's just that should just be a given, that that's not demonstrating value. Those would probably be the first things that would make you flag up going, something's going wrong here. Then you start to look at the engagement review, with reviews. Then you start to look at, even things like, we had a big thing here with consumer duty, where we massively reduce the size of our suitability report, and advisers are really concerned about what that was going to bring. But actually, what they the feedback was, I've had more questions with my clients, or more questions on these shorter reports than I ever had on the 30-page ones, which means they, first of all, they actually read them, because they can't ask questions if you didn't read it. But it also started to mean that they were having more valuable conversations around what, what it was that you were going to be doing, which then means, for me, so the metrics we've just been talking about here is. How many clients are you hitting their objectives? Are we really clear on exactly what it is we're trying to achieve for the client? Because if we're not clear on what we're trying to achieve, we can't demonstrate we've hit it, which means we can't demonstrate the value we're bringing.

Within reason, the clients come to you, they've you a mandate, they've given you a job. And let's be really simplistic, I'm going to give you the job, Ricky, as my adviser, is, I want to retire at the age of 65 and I want £40 grand a year in income. There you go. That's your job. Well, your first job is to go. Is that realistic? Because if I'm sitting there with £20 grand of a pension and willing to put £20 a month away, you're going to say, quid a month away, you're going to say, sorry, Christian, this isn't a job that I can take on unless you're going to be willing to do something about this. But let's assume the job is reasonable. You then need to tell me whether I'm on track to achieve that. That's the value. Now I might be happy to pay you £500ba year or five grand a year, which is the subjective bit. So that then comes down into, well, actually, how do we demonstrate what it is we're doing for that? Is it, when you start to look at the nuances in terms of the technical work you do for me, that you can demonstrate that actually you've saved me five grand in tax by doing what you're doing? Boom, then all of a sudden, we're in a different sphere. So really starting to, again, but perhaps the same thing we've already talked about, be really clear on who you're working with, what you're going to be doing for them, and then how are you going to track the value that the client gets from that work with you? I know it's not always achievable, but I've seen some firms do value statements. They literally produce a statement every single year that shows what it is they've done for that client in that year. Now, in some cases, it will be an intangible pieces. Some of it will be actually working with other professionals that they've needed to because  they're selling a business, or selling a house or buying a business, or, you know, whatever it may be. Sometimes it's the tax, sometimes it's the objectives. You know, it's a real mixture of all the different things that firm has done for that client or those clients, over the space of the year. Now, okay, if you've got a smaller business with a with a smaller client base, that's much easier to do. But equally, if you've got a bigger business with more clients, does that mean they shouldn't get the same service, or is that a you problem, not a them problem?

Do you know I'm amazed. as soon as I'm, you know, have a 10 minute chat with pretty much any adviser, the amount of value that's provided, is cheap as chips compared to what's being costed out or being charged, and that relationship with the benefit to the cost, you know, it can sometimes be hard to dig it out. There's a few kind of ways you could do it, like you mentioned, contributing to a pension, putting money on an ISA, taking money out in the right order. Putting something into trust, even getting beneficiaries on a pension, that that can generate thousands and thousands of pounds worth of financial benefit. And then, that’s before you get into the counterfactuals of, what if we didn't do these things? What if, I didn't help you stay in the market when there's volatility and you came out at the wrong time? All the studies show that that can be hugely consequential. End accumulation. If I've got a bucketing strategy, and it allows you some peace of mind, you get into this intangible stuff, which I think is maybe where there is room for tools to come on stream and help advice firms, because it's not easy to track anxiety or peace of mind, but you're increasingly seeing more tools come on stream to do that, if it's different from satisfaction. And I think the utility you get in a relationship with an adviser is massive. It's not investment performance, even though our meaning the value research told us that clients still hold on to it more than maybe advisers. So maybe there's a job to do in those value statements and just showing all the other elements apart from investment performance.

Without a doubt, we need to take investment performance out of that. Yes, there will be times when investments have performed equally right now, they're clearly not. And as you say, then the work you're doing with clients to stop them from pulling out of the of the market at the wrong time adds value. So, I think for me, it's, it's actually bringing to life all of the things that you do as a business that adds value. So, for example, you just mentioned three things there that I would imagine is documented in a firm's CRP. We use a bucketing approach. We use this, we use this, we use this. Now, okay, the value will be different for different clients, but that's a piece of work that you've done as a business that adds value to your clients, rather than just put it in there and then draw it how you want to draw it. So, it's bringing to life some of the firm, processes, procedures, research, due diligence, all of that that says, well, actually, this is what that brings to you as a client. Can I put a figure on it every single year? Absolutely not. But does it bring value? Yes, absolutely it does. And I think this is the piece that that is missing for me, is firms just having a proper look at what you do day in day out, and how that adds value to your clients, and articulating it, writing it down, and even the piece around you know that value statement.

Let’s assume we take on a client that's got a huge IHT liability right now, and over the next five, seven years, you managed to get it down to being absolutely nothing. And then year eight, year nine, they're going to why am I still paying you 10 grand a year? And it's like, when will you join me and the work that we did over the seven years that we first I'm going to carry on reminding you of that, because actually, your financial situation is very different to what it was when we first started working together. So, you know, they bring into life, I guess, just reminding clients of all the things they've done over the years that carries on bringing that value. Because if you were to put an upfront figure on mitigating, however many hundreds of thousands of pounds worth of IHT liability, well, you'd probably end up charging the client a lot more. Was actually saying, 'No, we're going to spread this across everything, because actually, what the work we did over the last, however, many years might now need to change or pivot, because of the change to IHG regulation with regard to pensions, which again, will bring a whole piece of value.' So, this never stops. And I think we know this within our profession, but we're not very good at documenting it. And I think this is the, this is the real difference with these, everything we're talking about today. And the idea of the paper is, how do you bring it to life? How do you show what you've done behind the scenes that adds value to your clients, and then how best you go and document that and remind them, and in some cases just market it. You know?

I just think that idea of a value statement you can take your lead from utilities, some forward-thinking providers remind you of the value you get. And I think some leading practice I've seen in firms where that's articulated up front. So going back to the meaning of value research, there can be a disconnect between, people that don't have an advisor relationship, don't appreciate it, and the depth of their understanding of the value increases the more they're in that relationship. So, starting the journey early might be good. I think just bringing it back to the duty then, because I think we're probably timing out, there was a caveat at the start of all this. Which caveated the start of all the good news, I think, which is, you finally got regulation that really aligns. You can be compliant by design, almost because you won't need to adhere to all these changing rules, because you'll have the mechanism to always course correct and show that you're acting to deliver good outcomes. There's the quote, right, but it seemed to me from the retirement income thematic in some of the stuff that the FCA is producing, that that this control framework is key, and it's a bit of a scary phrase. Do you want to just do a couple of minutes on what a control framework is? Because I think you mentioned CRP and to me, pretty much the same stuff when you certainly talk about ongoing advice.

Let's remove the phrase control framework.

See, that's why you're on. Because I would keep saying control framework. What have you done? What have you got in place that brings all of this to life? If and when the regulator asks you to have a look. This is what we've done. Take a look at the advice register and actually show how many reviews have been done, show what hasn't been done, and if there was a problem, how it got fixed. How has this improved? Have a look at the whole, you know, your fee reconciliation process, and look at any clients that you've needed to give refunds to. What monitor arrangements have you got in place, which are things like file checks, persistency ratios, training, complaints, feedback from clients. What's your approach when it comes to vulnerable clients and clients with different needs? Interestingly, I saw a firm that actually did a big piece of segmentation, where they actually looked at the Financial Intelligence of their clients as to how they were going to do the segmentation, and actually clients who understood less got a much simpler approach than clients with who had a at a much higher level of understanding. Now I'm not saying the solutions were vastly different, but it was just the way it was being articulated. That, for me, is a great piece of work to show what you've been doing.

Just on the whole file check piece. And if we're looking at the reviews, you know, something we still see is that people work off what I would class as being outdated, T&C setups in terms of, ‘oh, you know, we do 10% of our new business cases’. Brilliant. How much new business to do a year? Oh, not very much. Brilliant. How many reviews to do a year? Hundreds. Okay, so, so why aren't we checking those then? Because if that's what you're doing a lot of, then that's surely, that's advice every year. That is a new piece of advice because it's a periodic suitability assessment. So, what have you done in terms of getting some third-party independent checking of those reviews to ensure that they are delivering what you think they are? And so, for me, that whole control framework is just bringing all of those things to life. You can call it your compliance monitoring program. You can call it your systems and controls. You can call it your control framework. We can call it how do I prove or do what I said I was going to do? What have we changed? And again, I've seen this recently where we've worked with all of our compliance clients, we've tried to look at their annual compliance monitoring program or systems, and control CISC, and it's a bloody big piece of work, and everyone kicks the can down the road because they don't want to do it, and they know it's going to take a week. So, we've broken it into four sections. So okay, break up. What do you do you do in the last three months? Right? Write it down. Next three months, what do you do in the last three months? Write it down. It also means that, there's no chance that your systems controls plan will level up the percent. So, if the FCA come along, go show us your compliance monitoring programs. And 2025 looks like 2024 it's not true. You've definitely done things differently, write it down. What are we updated? What do we do on the back of the thematic review? What did we do on the back of the advice review? What have we done as a business to carry on improving ourselves? And it's just those tiny little tweaks that over time, You know, if you looked if you were to do that every single year over a 15 year period, and you look back to what you did 15 years ago, You couldn't be any more different, but you won't have noticed it necessarily, because it was just little, tiny tweaks along the way.

It's a great point. And I think a couple of things the FCA came out after reviewing board reports, duty board reports, and said, look smaller firms, proportionality, we appreciate it can be a bit daft if you're writing a report for yourself to read, but employ a critical friend, an external consultancy, be open to challenge and even on the DFCO letters, we've got into a really good habit over the years of always making sure that we formally digest them and ask ourselves honestly, what have we done against the standards that have been set out in the letters? I think the control framework, for me, it is a sore one, if you're not used to doing it, and it is most basic, around advice registers. That was what the worry was, I think, in terms of the biggest 20 firms getting looked at was, was just having systems that don't talk to each other. And maybe there's something in that. I think that's something we hear a lot about, you know, getting data joined up, and the retirement income thematic, I'm sure, I might be wrong, but I'm sure that when the FCA looked at, the information requests, and the CRPS said there's probably around 50% of firms had some sort of issues with data. And I think there were 10 files just couldn't be checked because it wasn't fit enough state to, to allow them to be checked. So, it feels to me there's still a lot of work to be done, if I'm being honest, isn't it? It does feel it. If you want to get through this new shift regulatory activity to outcomes-based regulation, you're going to have to put the work in. Is that fair?

Yeah, it's fair. And just back to your point about the systems and control plan. When we have new firms join us for our compliance service, the first thing we look at is an audit, and the first thing we look at is their current systems and controls plan. And quite often they either don't exist or they're disjointed. So, the first time they do it, it's yeah, it's a big piece of work, but then thereafter, it should just be a constant flow in terms of what have we done in the last three months, six months, 12 months, whatever it may be. And even on the back of the thematic review, the amount of firms that struggled with their data, or actually, when they actually got into the real detail of the data, and even things like risk profiling tools, risk mapping tools, capacity for loss assessment, cash flow, didn't actually understand them. And I think that was the big difference, for me, is firms being sure that they're comfortable with what they're doing, and they understand what it's producing. And if they're not, what are you going to do about it? And on the data piece, you know, we, I think we had some like 40 firms of our 120 odd on the compliance side of things get picked. Only two of those firms, when I did the feedback, we said, Well, the problem?

Oh, really? Okay.

One, one struggled, because the regulator wrote to them as a principal and asked them about their clients, but it was all of the AR. So, they all of the AR, so they didn't. They were struggling as to who needs to complete this. The other 37 in the middle went, Yeah, that should have been easier. But that took us three weeks, and we suddenly realized that we were recording stuff, or we weren't recording stuff, but when we did do it, we did it inconsistently because he called it this, and she called it that, and they recorded it that way. Or we didn't even know we could record that. Just really starting to understand all of these pieces. With regard to your back office, how are we monitoring stuff? With the CRP, do you monitor how often clients are needing to decrease their income because it's not going to be sustainable? You know, are you monitoring growth rates in terms of retirement? What is it you're doing? Are you getting the support you need from your DFMS? Are you getting the support you need from the product providers? In terms of some of the tools you guys have got is, how can you monitor whether clients are on track? Well, actually, the data's there. So, are you using these things that are the tools that you've got available? But you're right. It takes time. It takes investment. It takes someone, someone owning, owning that job. But back to our point of, if we want to have the regulator having a lighter way of supervising, we need to give them this. What it means is that the time you're currently spending having to do supervision, reviews and reporting stuff back to the regulator is actually getting spent on stuff that spent on stuff that adds value. So, yeah, put the work in up front, and you'll receive it at the back end. Don't put it up front and carry on and keep completing those reports.

And you know, I think we're expecting a sort of annual cadence of information requests, or a survey from the FCA wealth management firms used to this section 165 information request that comes out, I think retail investment firms, advice firms will be getting something similar. To my mind, what's being asked is probably information that will help you understand your business as well. So that's the point about the alignment that we're hopeful is the era we're moving into.

Okay, at the start of this, I think I said there were some learning outcomes. I'm just going to check, but we've hit them, right? So, did we talk about ongoing advice, review? Check. I think we linked it to the duty, right? We touched on how it kind of comes to life and accumulation. I think the accumulation is different. Talked about segmentation, that life stage is really important, and its good business. I call it risk management, but it's like you talk about, it's, running a business. So, I think we've hit the outcomes. Is there anything you just want to wrap up with to leave any viewers still, still watching with? if there's one thing you know to take away to get started on this? Is there anything that comes to mind?

I have more than one. This is an opportunity. So, first things first, this is an opportunity, but it's going to require a bit of work, which is that, prove it, evidence it. What have you got in place that actually demonstrates that you've gone through this exercise, you've put the time in, you've had a real good look at what your clients need, what my clients need, what am I going to deliver as a business? And business, and how am I going to monitor it? So, I think for me, it's just that whole real inward look at what we're doing and how we're doing it and then bringing it to life. Hopefully, with the guide that we've or the paper we've put together there'll be some real tips in there that people can take away. But I think for me, that's the real thing that firms need to look at. The things that I've seen over the last five years, working closely with firms doing this is, and the question I would ask of everybody is, if you're going to start the business tomorrow, would it look like it does today? And invariably, the answer is no. So, what do you need to do to get it to where, where you want it to be, and then putting a plan in place to achieve that over the next 12, 24, 36 months, whatever it may be, but, but really understanding what it is you're trying to achieve.

Great. Thanks, mate. It's been great listening to you, because it really brings to life what it's like at the coalface, instead of, Mr. Ivory Tower here. So, thanks again for your time today. Thank you. Thanks everyone for watching. As Christian said, he's at Verve so presuming people can just contact you,

yeah, we'll make sure my details and Verve's details are in in the, I guess, learning or the joint instructions so, we'll make sure people's details are open.

Great. And we'll also put under Contact, I think you'll be getting an email, or you'll have an email that has a link to the guide and also the meaning of value research. again, contact your Royal London consultant if you want to dig into value a little bit more. Thanks, guys. Cheers.

Thank you all.