Value is personal for Consumer Duty
Why are some people prepared to pay double or triple the retail price for Rolex watches, but others think that a Casio G-Shock is a waste of money as you phone tells you the time?
Why are kids queueing for an energy drink named after a certain Transformer (for those of you old enough to remember them!) whilst other branded energy drinks are perpetually on sale in the supermarket?
Why are some people happy to spend 6 months’ salary on holidays each year, whilst others prefer not to go away but rather spend their money on home improvements?
Because how much we value something is deeply personal. The value I place on something is almost certainly different from the value you place on it. The concept of value is based on our beliefs, experiences, circumstances, and preferences – it’s a complex thing to determine.
However, determine it we must to comply with Consumer Duty.
So how do you go about determining value?
The traditional way is to conduct a desktop assessment of the available products and services within the market and then select an appropriate one based on your client’s needs and requirements. This is the same when researching products for Centralised Investment Proposition segments.
But how do you determine if your advice proposition offers value for money? You could benchmark against the market or work out your cost or providing the advice and then put a margin on top.
In the final guidance paper, FG22/5, the FCA have confirmed that you, as adviser, should still be conducting value assessments as described above.
But I see a problem with just using this approach, and it’s called behavioural bias.
Behavioural biases are how we personally feel about something based on our lived experience, beliefs, and preferences. The sum total of our experiences will determine how to see the world, which will no doubt be different to how everyone else sees it.
And therein lies the problem. What I believe to be good value could be vastly different to what you believe to be good value. I may decide that it’s better to pay a little more for good reporting documentation or that a relationship manager at the investment provider is a waste of money.
But who am I to say what value you place on these things?
The only way to really find out how much someone values something is to ask them, and this is why advisers should be putting a great deal of effort into regularly obtaining client feedback.
Feedback is king
By asking the question, you’ll be able to get a much better picture of what your clients do and don’t value about both your service and the products and services they hold. This, in my view, is much more useful than a desk-based price comparison.
Your desk-based comparison may show that provider X is better value than provider Y, but your client may value the comfort they find in providers Y’s household name. You may think that because of the simplicity of your client’s holdings, one meeting a year is more than enough, however they may want to pay extra for the peace of mind they get from seeing you 4 times per year.
I hear time and time again from independent advisers about how one national advice firm is “ripping clients off” based on their fees. I concede that those fees are higher than most advice firms charge, however that particular national have amazing client advocacy (their clients regularly recommend them to their friends). How can this be so? It’s a question of perceived value.
Clients of this national get a card and an expensive hamper on their birthday and at Christmas. They get invited to wine tastings and front row seats at cultural events. I short, they feel special, which is something they’re willing to pay for.
With this in mind, I would argue that value is much more what a client feels than any direct cost comparison and the only way you’ll find this is out to ask them.
Asking the question
How best to ask for feedback?
You could ask the client at the end of your meeting with them, or give them a call to go through a questionnaire. There are two issues with both of these approaches:
- Behavioural biases can creep back in. Any time you (as the adviser) read out a question, you’ll subconsciously put emphasis on certain words, which can lead your client to answer the question in the way you think is correct, not what they actually think.
- People want to please, so you're much more likely to get a positive answer when talking to a client than may actually be how they feel.
We think that the best way is through surveys completed by the client on their own. This will provide a greater chance of capturing how the client is really feeling and removes the chance of any of your own biases clouding the results. Don't forget that surveys should be sent out regularly (not just when a product has been sold) and the responses should form the base of your value assessment.
Asking the right questions is also key. Multiple choice questions or Likert scales (strongly disagree to strongly agree) will give you more colour than yes/no answers and are better for illustrating trends over time.
Whilst free text is useful, it’s very difficult to analyse or use to spot trends on a larger scale. By all means include free text answers where you want the client’s own words, but ensure the majority of your questions have set answers to choose from or you’ll spend an weeks each year trying to see trends from rambling answers.
Standing on the shoulders of giants
Rather than trying to create your own surveys, by far the easiest way is to use a system already created for this purpose.
We like the Elevation platform from Vouchedfor as its questions are written specifically for Consumer Duty. The survey asks clients a series of questions aligned to the Consumer Duty outcomes and benchmarks results against your own vulnerable clients and industry averages, so you know where you stand.
VouchedFor also present the data back to you in an easy-to-read report, removing the need for you to spend any time pulling survey data together.
If you like the sound of VouchedFor, you can use code WRIGHT1 for your first month free.
If you're not sure what to do about assessing value in your business, don't worry - we can help! Book your free consultation using the button below.