Consumer duty has taught advisers to write things down

Speaking to FT Adviser, following the launch of M&G Wealth’s client segmentation guide for advisers yesterday (June 24), McInally discussed how this strategy can help the profession meet its consumer duty obligations.

She also looked at what the industry has learnt from the regulation nearly one year since its introduction.

She said: “We have learnt to write things down because of consumer duty. I have been pleasantly surprised at how well most adviser firms have taken on consumer duty and taken it on with a positive outlook.”

The regulation has allowed advisers to deliver better advice and has also allowed clients to actually see the value that advisers deliver to them, according to McInally. 

“There is more to what advisers do than just invest money and funds. We've had, obviously, some volatile markets but if advisers have positioned what they do, then it’s not been a problem that the fund has fallen over the last year.

“Instead the client has been able to maintain or take more income out of their pension this year because of the cost-of-living crisis.

"Advisers give their clients the confidence or the comfort that they can actually maintain their standard of living and still afford the holiday they usually go on,” she added.

Client segmentation

The launch of the guide, in collaboration with NextWealth, was released with research which found over a quarter of advisers do not segment their client bank.

McInally believed the cohort of advisers who said they didn’t segment probably do but it is just not written down and documented.

She said: “When I speak to advisers who say 'I don't segment', they then say to me ‘well actually now that you've said what the FCA are looking for, I do do that, but it's in my head.’

"So that would be one of my key takeaways from this research, is that advisers need to have a process that's robust, repeatable and written down.”

McInally said it was “comforting” to see the majority of advisers had said they did do client segmentation.

But another reason why 26 per cent said they weren’t was because they were segmenting clients in terms of monetary amounts which she said doesn’t always take the individual client’s requirements into account.

“Say for example a YouTuber will become a millionaire by the time they're 30, they are not going to have the same requirements as someone who's accumulated a million pounds worth of pension at 60. 

“So that's why this whole conversation about segmentation is important and this guide might just bring us back to the surface with advisers and get them to think about whether they need to revisit what they do and make sure it's fit for purpose,” she explained.

Understanding clients better

McInally believed client segmentation could help advisers to understand their clients better and to think about whether the client propositions they have within their firms are suitable for the clients they have in their banks.

She said: “Clients need advice more than ever, but also, they're starting to look at the value that they're getting from that advice. So segmenting client banks will absolutely help advisers understand their client bank better. 

“What it will also do for most advisers, is give them confidence that actually, they're providing that good service for the client.

"But also it may give them a reason to take a step back, and look at their target clients and see that actually the propositions that they’re putting in place maybe aren't quite suitable, and one of the biggest areas for this is vulnerable clients. It's certainly an area where I see a lot of advisers looking for more help.”

By using guide’s such as the one launched by M&G Wealth it may help advisers to identify vulnerable clients more and ensure they do have the correct processes in place to deal with this cohort of customers.

“It comes back to having a robot repeatable process. Just having something written down as to how they deal with vulnerable clients will benefit advisers because that is possibly the FCA's next step, looking at how advisers deal with vulnerability,” she added.

Marketing of firms     

McInally said it was “refreshing” to see some of the work that firms have done on consumer duty and then using that work to market themselves to consumers differently.

“Some firms that we spoke to found that they've got a new cohort of clients that have now been attracted to the firm because of things to do with updating their website and putting the services that they provide, and the type of clients that they deliver advice for.

“One of the really simple ways of doing this was including Google reviews or Trustpilot reviews on their website. So client segmentation gives advisers a chance to market themselves differently, maybe if they've got a little bit of a niche based on the type of clients they have.”

McInally highlighted that regardless of what stage in their career an adviser was, whether they were planning to retire and wanted an exit strategy or if they are a young adviser and plan to buy a client bank, all advisers need to make sure they have done client segmentation.

“If you have all your ducks lined in a row, then it makes your business more marketable,” she added.

alina.khan@ft.com