For the past two years, Barclays has been working alongside the Financial Conduct Authority (FCA) as part of the Advice Guidance Boundary Review (AGBR), which will report in the coming weeks.
The current regime dates back to 2013 when the regulator brought in rules to restrict how firms can give advice to consumers. In the years that followed, a gap was identified, as firms were only allowed to provide "guidance", which is defined as generic factual information, or "advice", which is defined as a personal recommendation based on a full assessment of an individual’s circumstances and financial position.
The FCA’s Financial Lives Survey, conducted in 2022, revealed the extent of the problem – only 8% of UK adults reported taking financial advice over the previous year. In the same survey, it was revealed that there were at least 4.5 million non-advised UK consumers with investible assets of £10,000 or more held mostly or entirely in cash and who had no plans to withdraw a significant proportion of their savings within the next five years.
These findings, alongside a number of others, provided the impetus for the launch of AGBR.
Announced in the final months of 2022, the AGBR’s purpose is to provide a long-term solution to this gap in support and to make sure that consumers can access the guidance and support that they need, when they need it, at a cost they can afford, to help make informed financial decisions.
In December 2023, the FCA and Government jointly published a paper, which set out three proposals which were aimed at helping consumers get the support and help they need with decisions on their pensions and investments.
The proposal taken forward for the next stage is currently known as ‘Targeted Support’. Its aim is to provide a solution that sits precisely in the space between ‘information and guidance’ and ‘holistic advice', the advice gap named by a variety of reports as the key gap to plug for everyday consumers.
For Barclays, ‘Targeted Support’ represents the opportunity to provide customers with the additional guidance they need to overcome the common barriers to investing, barriers like complexity, choice paralysis and the perception of investment risk.
If approved, 'Targeted Support' would enable firms that have been authorised by the FCA to provide suggestions to new or existing consumers on what might be in their interests in relation to specific pensions or investment products, with the recommendations based on groups of consumers with common characteristics. 'Targeted Support' would also allow providers to outline scenarios which should result in better outcomes than if they took no action or continued with their existing choices.
As part of the AGBR consultation process, the FCA wanted firms to evaluate a 'Targeted Support' journey in a live, but controlled environment. That process was named the AGBR sprints, it happened earlier this year, and Barclays, which has been an active participant in the sprints, can now showcase the findings.
What was the research methodology and the approach?
All firms taking part in the 'Targeted Support' pilot were required to test a saving to investing journey with customers in an offline lab setting, with the aim of discovering how an authorised firm can provide support to consumers through a digital ‘cash to investment'.
Barclays tested such a journey with a group of Barclays UK savings customers, each of whom held over £10,000 in cash with no anticipation of withdrawing funds within the next three years, an emergency fund, no high-interest debt, and no investment products to date.
Using a combination of physical and digital stimulus, a series of 90-minute, one-on-one user sessions were conducted to explore feedback on five key moments within the ‘cash to investment’ journey. The moments were design to answer the following questions:
1. What has prompted and prohibited customers from investing?
2. What will motivate customers to start investing?
3. What will help customers feel confident in choosing an investment product?
4. What would help customers to invest the amount that is right for them?
5. What would help customers continue to actively manage their investments?
The first test saw customers offered a single product recommendation based on broad segmentation data, while the second test used a quiz format to provide a recommendation based on more granular segmentation data, incorporating information given by the customers about their circumstances and preferences captured through a set of questions.
Key findings and learnings
After reviewing, findings were collated from the sprints and customer testing, with three key strands of feedback formed. For 'Targeted Support' to succeed, it will need the following:
1. Relevance
Testers delivered feedback that recommendations made to a broad segment felt too generic and irrelevant to be useful. The approach would be much improved if recommendations were made using a more granular segmentation model that is more tailored to customers' circumstances.
2. Personalisation
Feedback from the sprints discovered that customers already assumed that the data firms held on them was being used to personalise a recommendation, and to succeed, a broader range of data points beyond just having over £10,000 in savings, an emergency fund, and no high interest debt was needed.
3. Customer-led
Tests showed that customers were most trusting of recommendations they had a hand in shaping.
Working alongside 'Targeted Support'
Barclays is supportive of 'Targeted Support' and believes it could play a significant role in helping customers with investment decisions. However, on its own, it will not be enough to bring about the behavioural change needed to eradicate the advice gap and turn the UK from being a nation of savers, to a nation of investors. 'Targeted Support', and the AGBR, are interlinked with the 'Consumer Composite Investment' consultation and the wider work that’s being done looking at ISA simplification and how we drive greater investment into UK capital markets.
1. A simpler sign-up process
A reduction of some of the current frictions in the sign-up journey, with the declarations, risk warnings and product documentation for first time investors, alongside the introduction of a badge for entry-level investment products.
2. Communicate how tax regimes work
Allow firms to showcase the incentives aimed at enabling customers to turn their savings into investments by offering clear tax benefits that increase the appeal of investing in comparison to holding excess cash in savings products.
3. How to display risk warnings
As well as displaying risks, firms should be allowed to clearly communicate the benefits of investing to aid consumer decision making without prejudicing it.
4. Help build knowledge
Government should attempt to increase awareness and appetite for investing through nationwide initiatives that address the knowledge gap and the negative misconceptions surrounding investing such as via a mass retail investment campaign.
What are the next steps?
The FCA is due to report soon on the results of the sprints and consult on rules. The results will make for fascinating reading as the way firms can give financial advice to consumers is adapted and reworked to better serve the needs of UK consumers.
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