Technology has opened up new opportunities to provide personalisation at scale. However, many are still failing to grasp them.
If I were to ask: ‘How personalised does financial advice need to be in order to be suitable?’ you would, I imagine, tell me it depends on the situation.
You would likely note that regardless of a client’s circumstances, any suitable solution must account for certain variables, most obviously a client’s willingness and ability (both financial and emotional) to take investment risk, and how well-equipped they are to understand what they are investing in.
You would probably add that the more moving parts in a client’s situation, the more time and expertise suitability requires.
For extra credit, you could point out that greater personalisation tends to make advice harder to scale. Convention tells us that to scale up the advice-giving, you need to scale down the profile-building – making assumptions rather than individually assessing details such as other assets and liabilities, or personality traits relevant to investing. This is, in essence, the thinking behind Targeted Support.
In all of this, you would be correct. Yet suitability processes do not always reflect that logic in practice.
In practice, suitability processes frequently get stuck trying to meet rigid legislative requirements regardless of the advice being given. On top of this, suitability processes still rely unnecessarily heavily on clunky (and error-prone) human data-processing when the technology already exists to do a better job at lightning speed – breaking the need to trade off personalisation and scalability.
The FCA is actively addressing the first of these. Their recent consultation on simplifying the pensions and investment advice rules (CP26/10) sets out a vision for a more ‘proportionate approach’ to suitability, for example replacing the rule to consider ‘necessary’ information with an expectation that advisers consider ‘sufficient’ information. ‘Proportionate’ should not be read as ‘less rigorous’. ‘Sufficient’ is not a licence to collect less information; it is a requirement to collect enough of the right information to support a good outcome.
When suitability is treated as a static, up-front, box-ticking exercise, tied more to the sale of a product than the guidance of a person, complexity accumulates quickly. Each new requirement gets bolted on as a Frankensteinian extra rather than built into the process where it belongs. The result is more machinery, but not necessarily better suitability.
When this sort of thinking meets an attempt to streamline a suitability process, we see shortcuts being taken where they shouldn’t be. We still see many firms relying on poorly validated attitude to risk questionnaires, static and incomplete measures of Risk Capacity, and either ignoring behavioural factors altogether, or inappropriately mixing them into measures of Risk Tolerance, resulting in something that measures neither properly. For example, it’s common to find questionnaires purporting to measure Risk Tolerance, and then in effect asking how someone feels about taking investment risk this morning – reflecting their short-term emotional responses to markets right now, not their long-term psychological willingness to trade-off the chance of poor returns for the chance of better ones.
At the extreme, we see suitability processes that can produce suitable outcomes only in situations that never actually occur: a single pot of investable assets owned by someone with no other assets or liabilities, whose future spending needs are exactly covered by future income, who is fully insured against unexpected financial needs, and who will pay no attention whatsoever to the portfolio during the time it’s owned. Usually, the failings are less obvious than this. But they still produce unsuitable advice, and the proposed rule changes will not fix them on their own.
Errors such as applying Risk Tolerance to a particular pot rather than to the investor’s overall wealth, reducing Risk Capacity to a cursory affordability check, or ignoring behavioural factors altogether are almost guaranteed to distort suitability. Yet these problems are still found in processes underpinning supposedly ‘holistic’ advice.
Suitability is Proportionate, Dynamic, and Behavioural
The move to simplify the advice rules should be a welcome wake-up call to many to get their suitability process in order. This should focus on seeing suitability as:
- Proportionate – Firms should collect and use information that is sufficient for the client, the product or portfolio, the service scope, the complexity of the decision, and the foreseeable harms that may arise. This doesn’t mean ‘ask fewer questions’, but rather ‘ask the relevant questions’. Unnecessary steps should be discouraged, as should skipping steps in the name of minimising friction at the expense of better client outcomes.
- Dynamic –Suitability should respond when the basis for the recommendation changes, not when a calendar review date arrives. For many clients, this is driven primarily by changes in Risk Capacity, the most dynamic element of suitability. Oxford Risk’s analysis of over 87,000 investors shows that more than half had a higher Suitable Risk Level than Risk Tolerance alone implied. Dynamic suitability means ongoing monitoring of relevant changes in circumstances, preferences, engagement, behaviour, vulnerability and emotional comfort, flagging when reassessment, engagement, reassurance, adviser review or escalation is warranted.
- Behavioural – Behavioural factors are fundamentally important to recommendations themselves (e.g. adjusting the presentation of a portfolio based on an investor’s Composure, or the influence of their Impulsivity on a suitable drawdown strategy). They are also relevant to rolling communication, engagement, and information-gathering, especially in a world less centred around a single annual review. This is where Behavioural Vulnerability and personalised engagement become central to Consumer Duty: identifying who needs reassurance, education, friction or escalation, and delivering that support when it is actually needed.
These three elements are all obviously interrelated. And they all require monitoring of relevant changes in circumstances of the sort only technology can provide reliably at scale.
With the right technology, there’s no need to either cut corners or add on onerous extra tools – to reduce people to a mechanical approximation, or to find fiddly workarounds. Good suitability tech can scale with the situation it’s supporting, eliciting whatever information is needed when it’s needed.
No adviser sands off the human edges of a client because it improves the experience. They do it because doing personalisation the old-fashioned way is costly and complicated, and the poor outcomes that could materialise are far enough in the future to appear sufficiently small in the present. But those excuses are disappearing. We now have the technology to make personalisation and scale possible together.
