The Financial Conduct Authority’s (FCA) new Consumer Duty rules has set a higher standard of protection across the UK financial services sector. Which has had big implications for retirement advice, already the focus of an ongoing thematic review by the FCA, writes Roland Whyte chief executive and founder of Nokkel.
Going forward, financial advisers will need to have a much deeper understanding of a client’s finances and assets in order to deliver the most valuable and tailored advice. One long-neglected element of this full picture is an understanding of a client’s property wealth.
The urgency cannot be overstated. According to Scottish Widows’ latest Retirement Report, a third of Brits may retire without enough to pay for essential bills, with planning complicated by economic uncertainty, rising interest rates and the cost-of-living crisis.
Pension income alone is no longer enough. People need a clearer picture of the full extent of their finances if they are to retire with enough money, and property wealth is a significant factor.
Property, pensions, and the problem
According to the Office for National Statistics (ONS), outside of private pensions, more UK personal wealth is accumulated in property than anything else.
Yet while advisers often gather property wealth information as part of their fact-finding process, there is huge variation in how this information is incorporated into advice, if at all.
A pensions crisis looms, and property wealth is a sleeping giant.
Of course, it’s easier said than done. There is a significant challenge for advisers such as a lack of consistent and reliable property data upon which to base robust advice.
For example, an adviser may need to guide a client on whether it is more tax-efficient to draw down from their pension or release equity from their property investments. This is exceptionally difficult without access to meaningful valuations of the properties in question.
Connecting the dots – property data and its use in financial advice
For decades, vast amounts of property data have been largely siloed and underutilised. A lack of data sharing across different players and parts of the industry has led to difficulties in harnessing it for actionable insights. This has in turn hindered financial advisers when it comes to integrating property wealth insights into financial planning.
However this is changing, market players with huge amounts of data, like local councils, HM Land Registry, property-selling platforms, and financial institutions, are working to bring transparency to the industry.
This is being driven from the top – through the Geospatial Commission’s plans to improve the UK’s property data system and HM Land Registry’s plan to digitise the industry and empower better data sharing.
The Home Buying & Selling Group also recently launched its Property Data Trust Framework 2.0 to allow different players to share data in a trusted way, which is being compared to the open banking boom in financial services. This is all good news for financial advisers that need to start integrating property wealth into financial planning.
Additionally, while it is necessary to break down the silos restricting traditional property data points, non-traditional data points are also powerful drivers of meaningful valuations. A McKinsey study shows that when predicting house prices, nearly 60 per cent of the prediction power can come from non-traditional variables, such as data on surrounding services like shops, schools, and even coffee shops. With so many elements necessary for accurate house valuations to support conversations about property wealth, it is understandable that this topic has taken a back seat in advice conversations.
Integration issues and harnessing actionable data
While there has been progress in making reliable and accurate data available, financial advisers still have a property data integration problem. Without the ability to integrate property wealth insights into advisory software, advisers’ ability to deliver against the new Consumer Duty rules is hampered.
Advisory firms use different combinations of back-office software, with firms using an average of five systems in the process of giving advice. A report from Origo found that 85 per cent of advisory firms believe that a lack of integration is a serious cause of inefficiency within their businesses.
Only by stitching all the data points together, can we be assured of quality property valuations, which are essential to get a complete picture of a client’s assets and overall wealth. Naturally, there is growing appetite from the adviser community for technological solutions to enable property data to be better incorporated.
Clients not having enough money for retirement is not only an immediate cause for concern, but an issue that may plague generations to come. With regulation increasingly focused on protecting consumers, property wealth is essential to gaining a more complete understanding of a client’s financial situation and make informed retirement decisions.
However, to turn this into a reality, progress in deciphering relevant insights from a growing pool of property data must continue, as well as addressing the issues with incorporating this data into accurate advice.
In a competitive and increasingly regulated environment, clients not only expect more, but have a right to receive it. Advisers that connect the property data dots and gain a deeper understanding of their clients’ financial situations will be the ones who don’t fall short of Consumer Duty requirements and thrive in the long run.
This article was written for International Adviser by Roland Whyte, founder and chief executive of Nokkel.