Can Vulnerability solve the none-advised/advised cliff

One of the challenges the industry faces at present is when to allow advised and none-advised processes. Advised are highly regulated, while none-advised allows a lower cost self service alternative. Most people agree that there is a place for none-advised sales within financial services as it allows those people with financial capability to purchase and interact with financial services efficiently.

The problem is that at present we have no way of measuring the consumer’s capability to measure this financial capability and hence no way of directing consumers if and when they should use non-advised approaches. This is particularly a problem for pension providers, who want to protect their consumers from making the wrong choice when removing pensions, but equally they don’t want to force their customers to go through the full advice process. This is the dilemma of the Advise/none-advise regulatory cliff.

We think that Vulnerability could be an answer. 

Vulnerability is an attribute of a consumer’s knowledge and behavior, and we believe that this should and can be measured, so we can have a Vulnerability Score, just like we have a Credit Score. Indeed we have already developed a Vulnerability Score to do just this. We call is MARS (MorganAsh Resilience Score), Resilience being the positive side to vulnerability.

The MARS score is composed of several attributes, one of which is “financial capability”. Using this attribute, it is hence possible to triage and to allow  “none-advised” services to those with a reasonable degree of financial capability, and withhold the service to those who do not. Equally, to direct people who are clearly vulnerable towards advice.

This may sound a little like big brother, but we are already doing this with credit scores, so why not with a Resilience Score. It is common place to qualify consumers on their credit score, to protect us from lending to those who should not be lending. So it makes logical sense to qualify people on their financial capability if they can use none-advised services.

I am sure this won’t be perfect, that some consumers will find ways round this, but I suspect we can massively reduce the proportion of people using none-advised services who are letting themselves into harm and detriment, and equally for those consumers who are financially capable letting them self serve and use non-advice services without putting hurdles in place.

We are doing a lot of work on vulnerability and how to measure and manage it. Get in touch if you would like a paper on the topic.

We are also speaking on the topic at the Retirement Conference on 6th December in London.