Make guidance personal, research concludes
Personalised guidance resonates much more with consumers than generic guidance based on existing regulations.
In an experiment, 76% of participants made a decision which led to a good financial outcome when they were given personalised advice.
By contrast, just 14% made a good financial decision when they received generic guidance, according to research by the Association of British Insurers (ABI) and Thinks Insight and Strategy’s behavioural team.
In the experiment, participants were asked to decide how much to withdraw from a hypothetical pension pot. Only 14% made a good financial decision when they received generic advice.
However, when they were given personalised guidance which highlighted a specific course of action – in this case, a specific withdrawal amount to avoid paying higher rate tax – 76% of consumers made a decision which would leave them better off.
Paying for guidance
Customers may be willing to pay for guidance which is tailored to their circumstances, the research found. Almost half – 46% - said they would be willing to pay for personalised guidance which would include tailored options presented in a helpful way.
Dr Yvonne Braun, director of long-term savings at the ABI, said: “Navigating the financial world can be confusing and it’s vital we do more to help people save, invest and make informed decisions when accessing their pensions.
“Our research clearly shows that customers can benefit from guidance tailored to their personal circumstances where it presents clear and relevant options to help decision making.
“This type of guidance should be enabled via the Government and FCA’s recent proposal for a targeted support regime, and we look forward to working further with government and regulators to bring this regime to life.”
Max Mawby, founder of Thinks Applied Behavioural Science, added: “The results suggest that firms have the opportunity to deliver much better outcomes for their customers by personalising guidance, particularly when simple choice architecture is used to guide customers alongside more traditional text.”
Sir Steve Webb, partner at LCP and former pensions minister, said: “This is vitally important research, measuring and demonstrating the potential benefit to consumers of being offered personalised guidance.
“We already have a world in which savers have complex choices to make at retirement, and the government is also consulting on giving them additional choices about how and where they build up their pension pot. But extra choice can cause confusion and lead to poor outcomes if savers are not helped to navigate these choices.
“Regulations should make it clear that providers can use information which they hold about savers to offer guidance which is personalised and presented in a way that helps people to make good choices.”
