February saw the launch of the FCA’s project looking at the challenges facing the Financial Services sector in meeting the needs of older consumers, with a plan to publish a series of recommendations in 2017. Discussion Paper DP16/1: Ageing population in Financial Services looks to generate discussion and gain insight into the key issues facing the ageing population. Although the FCA points out that that views expressed in the discussion paper via articles from a number of contributors are not necessarily their views there are a number of key themes that emerge:
- How products could be developed, particularly in terms of pensions and mortgages which respond to the demographic changes
- The need for Financial Services firms to reviews their processes, procedures and digital services, not just the behaviour of their customer-facing staff to ensure the fair treatment of consumers
- The need for firms to consider behavioural economics and vulnerable customers in relation to their own activities but equally not to stereotype older consumers
FCA will use the results of the discussion to prioritise a programme of work that looks at the specific needs of an ageing population and will carry out further research which will be scoped in the second quarter of 2016. The aim is to develop an FCA strategy on the ageing population to improve outcomes for older customers.
Although the focus of this discussion paper is on the ageing population it should not be forgotten that this sits within a wider environment. There are clear links here to last year’s work on vulnerable clients, the long running requirement to put customers at the heart of a firm’ s business model and strategy, the FCA’s focus on behavioural economic, the importance of culture within the financial services sector and competence and accountability under the Senior Managers and Certification Regimes. A major aspect and influence on all these areas within financial services firms is the competence on individuals at all levels within an organisation from the top downwards and within all areas of the business.
It is important not to see all consumers in this group as being the same; they are a diverse population and should not be stereotyped.
We are experiencing demographic changes which will pose major challenges for individuals as well as the financial services sector. Increased longevity will mean there will be an even greater need to prepare for the possibility of a longer retirement. People retiring now may well have a 20 to 30 year retirement compare that to those retiring in 1965 when the average life expectancy in the UK was just under 72 and therefore the retirement period was limited. As a report from the International Longevity Centre UK ‘Understanding retirement journeys: Expectations vs reality ‘(November 2015) states
“The nature of retirement has changed from a few years at the end of life, often in poverty, to a period of twenty years, which for many (though not all) is increasingly characterised by relative financial security. Older consumers are now a large and growing part of our economy.”
The FCA discussion paper points out that the number of people aged over 65 in the UK is set to increase by 1.1 million over the next five years and according to the ONS Population Projections, those 60 and over are forecast to be 30 per cent of the population in 2037 .
It is important not to see all consumers in this group as being the same; they are a diverse population and should not be stereotyped. However, there is research that suggests older consumers are less financially capable when it comes to selecting products and processing information. Cognitive decline however is normally not seen to a significant degree until post the age of 75. In terms of dementia this is seen in five percent of 80 year olds but once you reach 95-99 years old this raises to twenty percent of men and thirty percent of women.
While the incidence of multiple difficulties with undertaking task of daily living increases with age it is also influenced by location and socio-economic factors and while not everyone will need long term care for those that do the cost can be significant.
Treating Customers Fairly
Treating customers fairly (‘TCF’) has been a key element of the FCA’s approach and the need to treat customers as individuals. TCF should be central to a firm and its culture and customer’s needs and circumstances should be fully understood and in turn the customer should be clear about the risks, costs and benefits of solutions and services. Older consumers can become vulnerable consumers and this should be taken into account too but it would be wrong to suggest that just because you are an older consumer you automatically fall within this category. As FCA’s Linda Woodhall, Director of Life Insurance and Financial Advice and Sponsor of Ageing Population Project points out
“Older consumers are a diverse population, with different beliefs, behaviours and needs, all of which affect the way in which they interact with money and financial services.”
Due to policy changes in pensions and the provision of long-term care individuals are taking on the responsibility for their own provision and the associated risks. This will require the provision of information and advice and the need for financial services to offer suitable products and services which treats this sector of the market fairly. Product design, sales, marketing, complaints handling, the skills of front-line staff and processes and procedures are all areas where firms can improve outcomes and experiences for older customers. It makes commercial sense to take this approach and if handled correctly could result in improved trust, reputation and increased customer loyalty. Customers are more likely to stay loyal to firms which address their needs appropriately and are customer centric, rather than pursing profits at any cost. Older consumers are a growing sector of the population and those who can provide appropriate products and services are likely to be commercially successful.
Senior Managers and Certification Regime
The FCA expects firm’s governance arrangements to be effective from a conduct perspective. The culture of a firm is seen as important in ensuring good customer outcomes.
March saw the introduction of the Senior Managers and Certification Regime and the scope of these will be widened to include all authorised firms in financial services sector by 2018. For those individuals covered by the regime a key element is their competence for the role they undertake and their on- going competence. The regulators increasingly ask to see evidence of the continuing professional development (‘CPD’) of those at board level. Specific responsibilities are placed on Senior Managers, such as those relating to culture and some of the new Conduct Rules apply widely and include the fair treatment of customers. The FCA expects the new Conduct Rules to support cultural change within firms by clarifying what is and is not acceptable behaviour.
With the demographic trends it is worth considering whether those throughout a firm have an understanding of the older customer section of the market place, both now and on an ongoing basis.
- Is the Board confident that their firm treats older consumers fairly and understands this customer segment?
- Does the marketing department understand their needs?
- Do those responsible for technology understand the impact they can have?
- Do those advising older consumers and front-line staff have the appropriate skills and knowledge?
It seems sensible that individuals, at all levels and departments within a firm receive the appropriate initial training and CPD.
Under the Certification the competence of individuals in customer facing roles which are subject to qualification requirements, advisers who were previously CF30, will now to subject to both the Training and Competence requirements and those of the in-house annual renewal. It may make sense to have specialists in the Later Life market, and one of the options available is the Society of Later Life Advisers, Later Life Adviser Accreditation (‘LLAA’).It was designed to build on the qualification requirements of the financial services regulator and focuses on the soft skills required and the practical application of knowledge, it recognises advisers with a higher level of competence in dealing with the older client. Today it continues to gives independent recognition of knowledge and advice skills which help older consumers and their families identify potential advisers. The Society also provides CPD courses which help to ensure knowledge and skills are kept up to date in this dynamic area of advice.
With an every growing market, it makes commercial sense for firms to understand the needs of older consumers and to address those needs appropriately. In order to achieve this it seems only sensible that those at all levels from the top down within firms understand this sector of the market place.