What your clients are too smart to know – and how the regulator thinks you should handle that. (Session 2)

Headlines:

1. Targeting segmentation around key life events such as health scares, workplace changes, divorce, and milestone birthdays presents significant opportunities for advisers. By addressing needs specific to each segment, such as financial independence assessments in cases of late-life divorce, firms can provide more tailored, proactive support, particularly for vulnerable clients, such as women over 50 experiencing life changes.
2. Following the thematic review, 80% of delegates reported changes to their segmentation practices, with a shift away from pure wealth measures. Firms are now considering factors such as vulnerability, family dependencies, and technology use, which provides a more comprehensive understanding of client needs. Small firms highlighted the challenge of formalizing segmentation due to similar client profiles and servicing needs.
3. Under Consumer Duty, advisers are encouraged to treat clients according to their unique needs. Delegates discussed the importance of consciously adapting segmentation strategies over time, focusing on client needs rather than solely regulatory compliance. The FCA’s emphasis on “proportionality” leaves room for interpretation, but firms expressed difficulty in applying this guidance, especially smaller firms with limited data and resources.
4. The regulatory landscape has evolved from prescriptive rules to guidance, then to principle-based and outcomes-focused approaches. While this shift aims to emphasise consumer benefits and harm avoidance, delegates were divided on its effectiveness. Some feared that this could lead to interpretative ambiguities, increasing compliance risks; others viewed outcomes-focused regulation as a positive, fostering sector ownership and reducing rigid rule-based limitations. Advisers were encouraged to attend upcoming FCA consultation sessions to provide input on implementation challenges.
5. The complexity of retirement advice is increasing, extending beyond financial planning into areas like tax, care needs, and inheritance. The “care factor” - including considerations for costs, longevity, and age-related conditions like Alzheimers - was emphasized as a major shift requiring advisers to adjust their approaches. However, the advice gap persists for small accumulators, as it remains financially unviable to serve clients with low retirement savings (average accumulation at retirement in Birmingham is £43k and £120k in Surrey).
6. The FCA aims to prevent foreseeable harm to consumers by encouraging firms to provide holistic advice, potentially even beyond their core services. Delegates raised concerns about how this mandate might conflict with fee structure limitations if firms cannot charge ongoing fees for advice extending beyond managed assets. The FCA’s focus on annual reviews as a service indicator was also questioned, with firms suggesting this may not accurately reflect the value provided.
7. The discussion touched on frustrations regarding FCA and FOS actions, with the latter often perceived as overstepping or reinterpreting complaint outcomes. Key areas of concern included misalignment of attitude to risk, inaccurate capacity for loss assessments, and lack of vulnerability recognition. Notably, over 50% of complaints against advisers are upheld, emphasizing the importance of clear, defensible advice processes and documentation.

Discussion points:

Life event triggers and proactive engagement
Advisers are encouraged to use life events as prompts for engagement, driving earlier retirement planning conversations. Targeted communications around milestones like a 60th birthday or mortgage renewal were cited as effective, with cashflow tools providing a basis for deeper, needs-driven discussions.

Sector-centric, proportionate segmentation
Delegates acknowledged the need to tailor segmentation to the specific needs of their client base, keeping it proportionate and sector-focused. Smaller firms highlighted the challenge of balancing segmentation with limited resources and client diversity.

Balancing outcomes-based regulation with compliance clarity
The shift to outcomes-focused regulation offers potential for more tailored client service but may introduce compliance challenges. Firms are encouraged to collaborate with the FCA, providing feedback on regulatory ambiguity and ways to reduce duplicative compliance requirements.

Holistic advice amid fee structure constraints
Preventing consumer harm may require firms to extend advice beyond managed assets, though concerns were raised around how fee limitations might hinder this. Firms suggested re-evaluating fee structures to allow for more holistic, client-centred support.

Mitigating FOS-related risks
Advisers highlighted areas where they may face FOS-related risks, such as attitude to risk misalignment and vulnerability mis assessment. Strengthening processes and documentation in these areas was recommended to minimize the risk of upheld complaints.

Key takeaways:

• Advisers should consider developing engagement strategies around client life events to promote earlier retirement planning and provide targeted advice
• Consider expanding segmentation criteria to include factors such as vulnerability, family dependencies, and digital engagement levels to better meet client needs
• Firms should actively participate in FCA consultation sessions to influence the development of practical, outcomes-focused regulations that minimize compliance ambiguities
• To address foreseeable consumer harm, firms may need to explore holistic advice models. Assessing alternative fee structures, such as fixed fees, could allow firms to offer broader advice while maintaining compliance
• Strengthening risk assessment methods and documentation around capacity for loss, attitude to risk, and vulnerability considerations can help protect firms from potential FOS complaints