Personalising guidance can “significantly improve” financial decision making, says the Association of British Insurers, and is calling on regulators and government to relax financial guidance rules stopping firms from prompting customers to take specific actions. 

The ABI commissioned research that found 76% of participants made a decision leading to a “better” financial outcome when guidance was personalised to an individual’s circumstances. The research, conducted by Thinks Insight & Strategy, also found that 14% of participants made a “good” financial decision when seeing generic guidance based on existing regulations. 

The report is published as the Financial Conduct Authority and the Treasury are calling for input on the boundary between guidance, which is generic under current rules, and advice, which includes a personalised recommendation. The FCA and HMT proposed three options, one of which is ‘targeted support’, whereby individuals would be shown a course of action based on limited information such as a group they belong to – which would require new regulations. The ABI appears to be throwing its weight behind this option.
 

   
“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,” said Yvonne Braun, director of long-term savings at the ABI.  

Sir Steve Webb, partner at LCP, agreed the rules should change: “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.”  

Under the experiment conducted by Thinks, participants were asked to choose how much to withdraw from a hypothetical pension pot. Just 14% of participants took a decision that would leave them better off by avoiding a higher tax rate, rising to 76% for participants who received personalised guidance which highlighted a specific withdrawal amount to avoid paying higher rate tax. The research included qualitative work with 12 people and an online randomised controlled trial with over 3,000 participants aged 55-66. 

It also showed that 40% of participants said they would pay for generic guidance, increasing slightly to 46% for personalised guidance that offers tailored options. Seeing personalised guidance also reduced the participants’ stated need to seek out additional information, from 56% down to 45%, according to the ABI. 

Max Mawby, founder of Applied Behavioural Science within Thinks, said the results suggest that firms have an 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”.

Would guidance that prompts a course of action lead to better pension outcomes?