This week AgeUK launched a fascinating report on Financial Resilience in Later Life (FRILL), that’s worth reading for anyone serious about understanding the underlying problems faced by financial services and regulators.
Vulnerability is one of the regulatory buzzwords of our times and is regularly used by the FCA, and increasingly by firms, to help frame their approach to such issues as affordability and forbearance. However, there's a sense it which all of us are potentially vulnerable, and so while there's an argument that we can recognise it when we see it, vulnerability (outside of the extreme) is much harder to define in advance.
As a concept, this makes it much less useful for firms and regulators alike. One danger is that efforts to impose a definition default into defining a process around it that misses the target. Over the years, several regulatory initiatives, including TCF (treating customers fairly), have suffered from this problem. Both firms and regulators carry the resulting scars.
So is there a better way? Reading the report, here are four ideas I think are worth exploring:
1. Playing the ball not the man: The report emphasises the need for high quality products and information, which at one level is a statement of the obvious. However, backed by the industry, the FCA, and FSA before it, is avowedly not a product regulator. It would be a major shift but, as our understanding of the sheer diversity of consumer needs increases, focusing more on the product might not be a bad idea.
2. Context is everything: It’s becoming ever more clear that the vast majority of people don’t think about money in isolation, but the shape of most products is still defined by the product provider. As a result there is often a mismatch between financial products and services and what the consumer really wants. Accepting that financial products are already more flexible than they were, I suspect the quest for greater flexibility still has a long way to go.
3. Simplifying the translation: The FRILL Report talks a lot about the importance of rethinking the language around finance. However, with the complexity of financial products and services continuing to grow, expecting consumers to catch up has for some time felt like a lost cause.
Flipping this round, and accepting the report's finding that terms like "rainy day money" can have different meanings, there may be an emerging case for building a financial “dictionary”, with accepted meanings properly defined. However, this only works if firms sign up to it and so give up some potential profit from introducing further complexity. This would be a significant shift along the buyer beware spectrum towards firms taking responsibility for mis-buying, but such a move seems increasingly inevitable - the question is whether it can be done in an orderly way.
4. Relationships trump transactions: One of the FRILL report's most interesting findings is the importance of peer to peer support, sharing experiences and war stories about dealing with finances. As financial services moves online, and bots increasingly become the advisers of choice, this poses a significant challenge for both the industry and regulators. Technology can help in some ways but won't be the whole answer. This seems like an issue – not unique to older consumers - that will only become bigger for both industry and regulator.
To end on a positive note, the report demonstrates how much resilience there is among those in later life, often in the face of bereavement and declining health. Many of us know this from personal experience but it's good to see the broader evidence. If financial services and financial regulation can provide better tools, there’s good reason to believe our ageing population will find ways to use them properly.
Yesterday, Age UK launched a new report, Financial resilience in later life, which calls for regular financial check-ups for the retired and people approaching pension age.