The Power of Personalised Guidance in Financial Decision Making

A recent study conducted by the Association of British Insurers (ABI) and Thinks Insight and Strategy’s Behavioural Team has unveiled the substantial influence of personalised guidance on the financial decision-making of individuals. The research indicates that when provided with tailored guidance, 76% of individuals make decisions leading to more favourable financial outcomes, in contrast to the meagre 14% when offered generic guidance based on existing regulation.

The study, which was based on an experiment simulating the scenario of investors needing to withdraw from a hypothetical pension pot, compared the decision-making outcomes of those who received personalised guidance on specific withdrawal amounts to avoid higher tax rates, with those who were only offered generic guidance. The results conclusively demonstrated the positive impact of personalised guidance on financial decision making.

Additionally, the study revealed that customers are more inclined to pay for personalised guidance, with 46% expressing their willingness to pay for such a service, compared to 40% for general guidance. This highlights a robust demand for tailored financial advice among consumers.

Yvonne Braun, director of long-term savings at ABI, emphasized the necessity of providing clear and relevant options to assist individuals in making informed decisions in the intricate financial landscape. She stressed the need for guidance tailored to personal circumstances and expressed support for the proposed targeted support regime by the Government and Financial Conduct Authority (FCA).

Sir Steve Webb, partner at LCP and former pensions minister, echoed the significance of the research in demonstrating the potential benefits of personalised guidance for consumers. He underscored the complexities and array of choices that savers face in retirement and emphasized the role of regulations in enabling providers to offer personalised guidance that facilitates good decision making.

The study, which encompassed an online randomised controlled trial with over 3,000 participants aged 55-66, was commissioned by the ABI to obtain these insightful results. These findings are particularly pertinent in the context of the ongoing review by the FCA and the government on the advice guidance boundary. One of the measures under consideration is the introduction of simplified advice to make it more accessible for firms to provide affordable personalised recommendations to clients with smaller investment sums.

In conclusion, the study underscores the substantial impact of personalised guidance on financial decision making. It highlights the need for tailored support in assisting individuals in navigating complex financial choices and making informed decisions. As the financial landscape continues to evolve, the provision of personalised guidance holds tremendous potential for improving financial outcomes and enhancing consumer confidence in making sound financial decisions.