Video Evolution or revolution - why financial wellbeing?

(00:00): At Aegon we have given a lot of thought to this notion of the wellbeing Maximizer and of course, the wellbeing Maximizer ties into the work that we have done on financial wellbeing. So what is financial wellbeing? There's a seemingly simple definition. It's all about our mental and financial ability to spend and earn money in a way that makes us happy.

(00:54): That's today. Tomorrow and the day after tomorrow. As I say, seemingly simple. But let's unpack this a little bit. First of all, there's the appreciation that money is important and there's all sorts of studies that show that indeed you need to have money, because without money, life can be tough and then it's about the fact that we need money today for present day needs, but also for tomorrow for all sorts of things that life can throw at us, but also the day after tomorrow.

(01:30): So that could be some long term aspirations like retirement or as we transition into a new life stage or need to re-educate. All sorts of things may happen in the long term. So we need money. And we need money, of course, for utilitarian things like shelter, food, health care, etc., all those things. But then of course, we need money also for the things that make us happy, for the things that give us a sense of gratification and relaxation for the things that make us feel worthwhile and competent and useful.

(02:11): Okay. We have deeper needs when we are spending and earning money and need for adventure, perhaps, or a need for companionship or a need for security or a need for can be all sorts of things. Okay, how about difference? So we speak about the wellbeing maximiser as opposed to the performance maximiser and that's a bit of an unfair contrast.

(02:37): Okay. But stereotypical. But to make a point, the wellbeing maximiser understands all those things. The wellbeing maximiser is a type of advisor who understands that we need money to satisfy deeper needs. There is the functional component, the technical component of financial advice. But we also need to listen deeper to the emotions, to the instincts, to the context, factors to the social pressures, to motivations, to capabilities, etc., that impede or drive our financial well-being.

(03:17): So at Aegon, we have developed this concept of financial wellbeing that essentially says financial wellbeing is comprised of two things. There's money and there’s mindset. Okay. On the money side, there's all those usual suspects that you would expect. Yes, we need an income. We need sustainable debt levels. We need emergency savings. We need to be able to fund long term ambitions and certain protection and other products like property potentially play a role.

(03:50): But then on the mindset side, it's about things that we are only slowly beginning to develop a vocabulary for. It's about an understanding of the things that make us happy. As I said earlier, this is about this balance of purpose and joy. It's about our ability to concretely and meaningfully connect to the future. We see that this is a really important aspect, the ability to have a long term mental time horizon and to have that future oriented mindset and behaviour really drives financial wellbeing, not only in terms of retirement savings, but also in terms of debt, emergency savings and other types that inform financial conduct.

(04:36): We speak about social comparisons. It’s inevitably that we would compare our financial situation to that of others. Okay, it's human to do that, but we need to figure out ways to compare more wisely in a way that, you know, doesn't bog us down. We then speak about a need to translate intrinsic motivations into a financial plan. It's not just about cash flow.

(05:04): It's not just about accumulation strategies or drawdown ways. It's also about the ability to fund the things that make us happy, as I say, happy now and continuously in the sort of mid future, mid-term future, but also the long term future for retirement. And then lastly, it's about a mindset that stays strong and steady in a time of crisis because crisis is inevitably going to happen.

(05:35): And we had a lot of crisis already and we had two political crises, economic crises, financial crisis. Chances are there will be some sorts of personal crisis potentially in the longer, healthier lives that we're living. There may be divorce, that may be illness. There may be a soul-searching crisis that makes you question why you are in this job.

(05:58): And makes you realize that perhaps you should transition into another type of job. Okay, so all that is almost inevitably going to happen. But the question is how are we mentally and financially prepared for times of crisis? That is our concept of financial wellbeing. As I say money and mindset and the wellbeing maximiser is the type of advisor who understands that, who has the functional and technical skills to build a long term financial plan, but who also has empathy, listening skills, and really can understand why the client would want to have that financial plan for that client's happiness and that client sort of ecosystem.

(06:51): The family and wider context operating in, happiness as well. So what is that wellbeing maximiser that I've been talking about now, and as I said, the best way perhaps to explain that is by drawing that unfair contrast to the performance maximiser. The performance maximiser is the classic type financial advisor. That is all about asset allocation. It's about performance of a policy portfolio versus a benchmark portfolio, and it's about costs.

(07:24): Thirdly, so it's a lot of emphasis on functional and technical components. The wellbeing maximiser, as I said, is also someone who has that functional and technical expertise, but who also really has an understanding for the deeper needs of the clients so all those variables that I mentioned. Understanding of what makes the client happy. That mental time horizon, when they're comparing themselves with what the sort of intrinsic motivations are that need to be supported with the financial plan and how to prepare that client for times of crisis, for example.

(08:05): Market volatility. Now, here's the reason why we encourage you to think about the approach, the traits and the techniques of a wellbeing. maximiser As opposed to those of a performance maximiser In research we've done, we see that the wellbeing maximiser is much more likely than the performance maximiser to report high profit margins, is more likely to get referrals and is much more likely to be optimistic about their futures business because they feel less challenged by the continuous rise of DIY by robo advice and increasingly artificial intelligence.

(08:50): So there you have it. It pays off. It makes business sense to be a wellbeing maximiser rather than just a performance maximiser. So what we're doing today is we are looking into those skills, techniques, approaches of a well-being maximiser. And I'm really glad to have top guests coming into our studio today and speaking to me about those traits.

(09:19): Contexts Approaches off the Wellbeing Maximizer. We have, first of all, Steven Cameron who is our very own Pensions Director at Aegon, and we will be speaking about new regulatory context, the new consumer duty, and how the new consumer duty may encourage us or may pave the way for the wellbeing maximiser. And then secondly, I'm really thrilled that Neil Bage is flying up to Edinburgh today to speak to us.

(09:51): He's of course that Applied Behavioural Scientist and thought leader in this space who has over the years consulted a very, very large number of advisers on exactly that topic that we're discussing here, where behavioural finance and financial wellbeing meet. And will we be discussing how we can encourage clients to stay focused on long term goals in times of market volatility, which ties in with what I said earlier, that we need to have a strong and steady mindset in times of crisis.

(10:32): We will be talking more generally about the traits of a wellbeing maximiser and what in his experience the traits are and again, why it makes business sense to be that wellbeing maximiser based on Neil's experience. And then lastly, we talk about that notion of retirement, which is increasingly being questioned. And in fact, I would say that perhaps one reason that we are increasingly talking about financial wellbeing is because we are less often talking about retirement readiness.

(11:02): So we will be looking into the notion of retirement and how financial advisors can help their clients to not only financially but also mentally prepare for that period that we call retirement. I hope that this leaves you inspired, financial wellbeing as perhaps a sort of, you know, difficult concept to grasp. Perhaps it initially sounds some like some utopian concept, something that is lost in the clouds of idealism.

(11:38): But hopefully we can convey that financial wellbeing actually done right has a lot of method. There's a lot of systematicness and there's a lot of rigor in it. So it's not just some sort of vision or mission, it's also tangible and it can be applied in practice. So we hope that you feel equipped after watching this series of videos, that you feel equipped to be that wellbeing maximiser and that you are motivated, intrinsically motivated, that it is not just because it makes business intrinsically motivated to become a wellbeing maximiser.

(00:00): Thank you for joining this episode in our wellbeing series. We are in this episode looking into retirement planning. Now we talk about financial well-being in terms of money and mindset, said that before we're thinking about retirement typically as a financial challenge. But today with Neil, I would like to explore perhaps the mindset or mental challenge around retirement.

(00:52): So perhaps beginning with that very open question, Neil, would you would you agree retirement is not just a financial challenge, it's also a mental challenge. I think it's primarily a mental challenge. You know, we in the history of humanity, you know, we as a species have made up a lot of things. You know, 3000 years ago, we made up money.

(01:15): You know, for example, 150 years ago or whatever the time frame is really about that we made up this thing called retirement. We've made of religion, We've made up law. You know, all of these things are manmade constructs. So we struggle with money. We know that there's a ton of research out there that shows that humans struggle with money because it's made up.

(01:39): We also struggle with this this manmade invention called retirement. And I’ll tell you one of the reasons why. It's because throughout evolutionary history, we've lived in what is known as an immediate return environment. And what I mean by that is the outcomes and benefits of doing something were immediate. So if it rained, we took shelter, if we were hungry, we ate, we didn't go.

(02:00): I think I'll wait to do that right. We just lived a life. That immediate gratification was the only way that we lived our lives. Well, actually, the way that we have evolved as a species at the same time that society has evolved means that society now places a pressure on us to live in an environment that's known as a delayed return, environment where we do something today.

(02:19): And actually the benefits won't be realized until some point in the future. That messes with the brain because for millions of years the brain has kind of just went now, now, now, all of a sudden we're saying to that brain, no you need to delay and the brain's going, I don't want to delay. I want to do it now.

(02:36): So we're saying to someone who's 30, save money today, and I give it back to you when you're 65 or 70, the brain goes. But no, but the logical societal pressure part of our brain goes, Oh, I know I should do that because it's the right thing to do. It doesn't detract from the fact that the brain inside of our heads, this old brain, is constantly battling with society, saying delay, delay, put off, put off, put it off when it's lived in an environment where it's all about the here and now.

(03:10): So is it is it a psychological challenge? You know, more so. Oh, that's why sorry, I say it's more of a psychological challenge than a physical challenge, if you like, because actually you need to address what's going on in your brain first before you address what's going on in your pocket. Okay, great. And then the well, I mean, the sort of obvious follow up question is how we've talked about guides and mechanics, right?

(03:30): So guides are people who work on the human experience of money. Mechanics are all about the take more around the technical aspects of money. The mechanic could turn up and say, Tom, I want to talk to you about retirement. Here's a lovely chart that shows you your cash flow, shows you when you might run out of money. You know, we've got an asset allocation built over here that's going to drive this growth, all that type of stuff.

(03:51): And you might go, Brilliant. What they've just show me is I'm never going to run out of money. That's really important to me. But actually, unless you address the fundamental aspects of what it means to be human and to transition from a chapter in your life to another chapter in your life, then actually you are not engaging with the human.

(04:11): You're engaging with a client as a as a mechanic. Let me tell you what I mean by that. We all work for whatever period of time, right? If we're healthy, we all have a full 30, 40 years of working life. We build up a community, a network. We have purpose. We wake up in the morning, we go to work.

(04:30): When you say to someone at a party, Oh, what do you do? You don't say, Oh, you know, oh, yeah, I'm Tom and I'm from Germany. I've got two kids, I've got a wife. I now live in Edinburgh. You don't do that. You say I'm a behavioural scientist. We typically identify with the thing we do most, which is work well actually, one day that stops, you know, 30 years of doing something.

(04:49): Stops like this. What about, where's your identity go? Where does your purpose go? You know, so actually, unless we address what are you going to do when you actually transition into this thing called retirement and the money actually becomes is irrelevant at that point. It's about the question is what are you going to do to continue having purpose, to continue having meaning, to continue wanting to get out of bed in the morning.

(05:12): And that conversation is wholly psychological. It's got nothing to do with money. I could talk to you about who you want to be in your future, your retirement. I don't need to mention money at all. You know, the money is just the engine that will allow that to happen. But unless you address that first and foremost, this becomes meaningless.

(05:35): It lacks relevant context. So, you know, advisors need to figure out how do I have conversations with people who are going to transition into this next stage of life, what we call retirement, but actually address the human challenges first and the money challenge should always play second fiddle to that, in my opinion. Yeah, yeah, I can see where you're going with this, but, um, let me let me get there.

(06:06): Potentially get that by asking lastly, a almost philosophical question, which is you mentioned that earlier that retirement is made up or it's a construct and I'm and I'm wondering what why, why is it useful or might it be useful to label that a construct or an invention? Well, you know what? Why is it helpful? What does it what does that do?

(06:23): Because it immediately opens our minds to thinking about it in a different way. Right? So, you know, we say, oh, I'm going to retire. The amazing the first thing people think of as, oh, what age? You know, that's the way we've we have been socially constructed to think of retirement and age. Yeah. How much money do I need to retire?

(06:41): Maybe I'm making the figure of £1,000,000. Done. And you go brilliant. I'm now properly planning for my retirement. That's because that's the structure that actually we've all come. We’ve all become used to. Let's get rid of that for a second. And let's talk about transitioning to another phase of life. Right. I'm a massive reader, you know, so I use chapters, you know, we're transitioning from chapter another into another chapter.

(07:06): And by the way, it's not the end chapter. It's another chapter of your life, you know, and we might call stopping work or we might go or we might call the chapter slowing down, you know, whatever it is, right? It's a transition. And if we think of it like a transition, then financially it opens up a whole bunch of questions like, well, what do I want that journey to be like?

(07:26): Who do I want to spend my time with? Where will I find purpose? It's not about the money. It's about the human journey, if you like. As we transition from chapter to chapter two, chapter to chapter. So for me, if we just accept that retirement is this construct, this made up thing that we as humans have invented, then actually that allows me to be more flexible in my thinking about how I approach it.

(07:49): Now, I'm not rigid anymore. I'm not bound by the rules of retirement anymore. I'm bound by I know I'm actually boundless. I can kind of just think of any possible future I want, and I can plan for that without any constraints. And yes, money, obviously features in that narrative. But the narrative arc isn't one of money. It's one of who do you want to be?

(08:15): How do you want to live a life of meaning and purpose? And ultimately, when you leave this earth, laying on your deathbed thinking, I have lived the best life that I possibly could have, you know, nobody, there’s research on this. Nobody. When they eventually leave this earth to learn, they're taking their last breath, say, I wish I had more money or I wish I had planned for retirement better.

(08:38): Now what they do is they say, I wish I had spent more time with the family. I wish I had done the things that I want to do. But you know what? As you transition into this next chapter of your life, think of that and think I don't want to lay on my deathbed and think I wish I had done this or I wish I had done that.

(08:52): You've got 20, 30, 40 years more hopefully, to do those things. So free your mind of the shackles that society has put on you and just think like a human being entering the next phase of your life. It'll change your outcomes completely. Amazing. Well, thank you so much. That was really, really thought provoking. There's a question that I'm labouring over, which is why?

(09:16): Why are we talking about financial well-being so much anyway? Because after all that knowledge, that happiness and money sort of like, you know, hanging together or enabling or sort of like impeding each other is not exactly a new thought, but this thought that financial wellbeing is perhaps something that we're increasingly talking about because retirement readiness is something that we have increasingly less often talking about.

(09:38): That's a sort of like idea that is shaping up in my head. Yeah Tom you know, I think there's another thing for people to think about here is, you know, so going back to what I just said about chapters in life, you know, when we transition into a different phase of life, a different chapter sticking with my phrase if we can.

(09:55): Yes, we are moving to something else, but we're also leaving things behind. And the and these aren't clear lines in life. We don't just transition into another phase of life and everything that's gone before is forgotten or has no impact or doesn't, you know, trickle through. That's not how we work as humans, Right? So as we transition, we also need to start thinking, what am I, what am I retiring to?

(10:19): Yeah, what am I moving towards? But also what am I leaving behind? You know, everything's a duality. Yeah. There's always a yin and yang. Yeah, right. And if we just think of one aspect of, oh, I'm going to retire and I'm going to do all these things. Yes. But also be aware of, you know, you're leaving your workmates behind.

(10:34): The 9 to 5, the job, the camaraderie, all of those things, they're going to be left behind. How are we going to deal with them? And that's why opening your opening up your question earlier. That's why I think this is absolutely a mind over markets conversation. You know, get the mind bit right and everything else will fall hopefully neatly into place.

(10:53): Now, amazing. Thank you so much. Thank you so much for watching. There was much in there, and I hope that leaves you equipped with a type of thinking that you can apply in your practice, in your intent to become a wellbeing maximiser.

(00:00): Hi. Thank you again for joining. We talk about the wellbeing maximizer, the traits approaches, techniques of a wellbeing maximizer. We talked earlier about the importance of a strong and steady mindset. And I'm really glad to be discussing that subject further with Neil Bage today. This episode here is looking especially into the right mindset in times of market volatility.

(00:51): So, Neil, we had a lot of market volatility recently. Chances are there will be more market volatility in the near or whatever future. What's tell us what's happening in people's heads when there is market volatility. Let's do a quick whistle stop tour of evolutionary biology because it's probably the best place to start, right? You know, we've been around on this planet as a species for around five and a half million years.

(01:16): Maybe 50,000 years is the species we would recognize in ourselves now, Homo sapiens, during that period of time we've had, we've survived because we have the most amazing, fine tuned ability to spot a threat and to prepare and deal with it. As you know, the brain spots it and tells the body how to deal with it. You know, people would recognize the phrase fight or flight, stay and fight, or you get out of that as quickly as you can.

(01:42): And that was fine when there was a lion on a savanna chasing us. You know, to spot there was a danger. But actually, as we've evolved and those threats have disappeared, the part of the brain hasn't just miraculously vanished. It's still there and it is still on the lookout for threats. And when we invest our money, which we have a, you know, a really tight connection with an emotional connection with, then the brain treats that in the same way it would seeing a lion running towards us.

(02:07): So when we see our money losing our money while markets are falling, it triggers the same mechanism in our brain. So, you know, red lines on a chart lion on a savanna. Same primordial response, if you like. You know, And that response is, I need to get out of here. This feels dangerous. What does that mean for an adviser then?

(02:28): How can an advisor practically deal with clients in times of market volatility? So it's all about understanding emotions and showing empathy. Number one, the most important rule we need to recognize that at the heart of all of our relationships is another human being. And this human being is evolved over that long period of time. And so we have a lot of evolutionary traits, you know, you know, our anxieties, our stresses, our worries, our fears that, you know, they are around because, you know, over the millennia, we have developed that fine tuned sense of spotting danger and threat.

(03:21): You know, we have without going into too much detail, you know, we have a system in our body, our sympathetic nervous system, you know, which gets triggered when we are anxious or stressed or worried. And the problem with that is under those states of heightened emotion, certain parts of the body get closed down because the body needs to operate as effectively as it can to deal with the threat.

(03:23): One part of the body that gets shut down is the prefrontal cortex, the front of the brain, which is responsible for decision making, planning kind of rationalization. It gets shut down. So in these states, actually, it becomes really difficult to think about what the right thing to do is, because we are not in the right frame of mind.

(03:44): So advisors dealing with people in these situations a need to recognize that that is what's happening inside that person's head. They are not being awkward. They're not being in a word I hate irrational. They are being perfectly normal. And therefore, all those behaviours they exhibit, you know, the behavioural tendencies, the biases they exhibit are perfectly normal too. So the first thing is recognize the human then the second and arguably maybe this is first, is we shouldn't be pathologizing what is perfectly normal human behaviour and a perfectly normal response to the stimuli that that person has used to reach that, you know, that state, if you like.

(04:25): So recognize that the human, don't pathologize them, just come alongside them and help them understand and guide them into, you know, or help them navigate the landscape that they find themselves in. The challenge we have is understanding how the human brain works. You know, so the brain takes in data, you know, you know, through its sensors. And then from that data input, it creates our perception.

(04:48): Mm hmm. And so imagine I turn the TV on, I see the stock market falling. That is my data input. And that creates a response in me. My emotions are created on the fly based on the stimuli coming into my brain right. Now during that process, all of our biases kick in. Mm hmm. You know, they are unconscious.

(05:06): We are not aware of them. And by the time we are aware of them, it's a little bit too late. You can't unwind everything and think differently in that context. So trying to identify biases and fix them or say or you're suffering with confirmation bias. What you need to do to stop that is this. No. Yeah. No, it's a fool's errand.

(05:28): What you need to do is move beyond bias and recognize that this person in front of you is trying their best to make the best decisions they possibly can, given, you know, the hand that life has dealt them and say that they're wrong or they're irrational, that being emotional actually does nothing but put them on the back foot.

(05:47): And pathologize what is perfectly normal human behaviour. Now, what can advise us then do to better mentally prepare our clients for those times of market volatility that, you know, inevitably will happen as well? I mean, typically what would be done is attitude to risk questionnaires, which perhaps appeals more to that sort of like prefrontal cortex that you mentioned.

(06:09): So that I sense is not good enough. What are you saying? There's two answers to your question. So let's do the first one, which is what can advisors do? Then we come on to risk tools and the like. Mm hmm. Advisors play two roles. So I'm going to introduce a language here that actually aligns with your language.

(06:32): So we're not we're not million miles apart here. They play two roles. They play the role of what we would call a shaping wealth. A mechanic and a mechanic focuses on the technical, technical aspects of money. You know, tax planning, estate planning, cashflow modelling, retirement, all those things right, the technical side, the stuff that we are all trained on.

(06:52): But actually they play another role and it's a really fundamentally important role, which is the role of a guide. And the phrase I use, I've used it already is they come alongside people and help them navigate the world that they are in. You don't need to be technically astute to do that. You need to be another human. You need to show empathy, listening skills, the ability to question properly, you know, the ability to be another human and recognize the journey that that other person is on.

(07:21): So market volatility will happen. Of course it will. And actually, what happens is when a client turns up and they say, Oh, Tom, I see markets are falling and I'm a bit anxious, I'm a bit worried. They don't need a better investment portfolio at that point. They need a guide. Yeah, they need someone to listen to them and acknowledge the emotions that the client is exhibiting.

(07:40): And first and foremost, help them navigate that. Yeah. Yes, they may need to tweak the investments. I get that right. They may need to build in more diversification, you know, more bonds than equities. Well, all the mechanical stuff. Yeah, that's just what we do anyway, you know. But actually, most of the time clients need a guide. And so that's the that I would say to advisors to be prepared.

(08:04): Recognize that you play these two roles and recognize when a guide is needed and when a mechanic is needed. Now, on the mechanical side, yes, there are tools that we can use, right? So attitudes to risk tools are one of them. And I have a view on attitude to risk having built them in the past. These tools that they are part of the story, but they are not the story.

(08:24): Yeah, they are part they are a piece of a jigsaw, but they're not the fully completed picture yet. They are amazing at asking clients questions that give us the ability to have a deeper, more meaningful conversation like that is amazing. Having a tool in your tool kit if you like, But typically speaking, generally speaking, broad sweeping statement coming up, they lack context.

(08:48): They are subjective by nature. They ask questions about the future, which we are terrible at modelling the future, you know. So are they good? Yes. Do they play a part? Yes. But they are not the be all and end all. And actually, if you use that as a more technical, a technical piece and use the answers and the conversations that that gives you with your guide hat on, actually, you will have a much more and a better understanding, a deeper understanding of a how clients navigate the world, but actually the dynamic nature and the domain specificity of risk.

(09:25): So in summary, mechanic, guide. You play two roles that recognize when those roles need to turn up, what part of a conversation and the outcomes would be far better. Perfect. That's amazing. Thank you so much. There's some real powerful stuff in there and obviously, as you can tell, that distinction between mechanic and guide, it really chimes in nicely with what we are talking about performance maximization versus well-being maximization.

(09:51): So thank you very much, Neil, for that. That has been great thank you.

(00:00): Hi. In this episode of our miniseries on financial Wellbeing, I'm very glad to be speaking to Steven Cameron, our Pensions Director at AEGON. Around the regulatory context that perhaps paves the way for the agenda of a wellbeing maximizer. Perhaps this is a wrong interpretation, but my way of looking at this, or my interpretation of what's happening here is that we have a shift, a second shift, when, you know, in the aftermath of the financial crash, there was a shift from product centric to being customer centric.

(00:58): So initially it was all about profitability and compliance and risk profiles, etc. to the customer, which was about the notion that, you know, the way the customer experiences a product is important as well and that they understand. And you saw that in regulation, like treating customers fairly. Now it appears to me as though there's a second shift happening and that is going from customer centric to human centric.

(01:21): And that is a notion where it's no longer good enough to just be thinking about the customer as the recipient of a product or service, but rather we've got to appreciate that the customer is a human. So someone who has instincts, who has emotions, who is in his or her own social context, has social pressures, has vulnerabilities, etc. and as a result, consumer duty may be nudging us to think about customers as humans.

(01:51): Is that a fair interpretation of what's happening? It's a very good conversation starter, that's for sure. And really quite, quite a deep question and very topical as well. With all the talk at the moment about artificial intelligence and how that could be a threat or an opportunity. So I suppose we could almost envisage the FCA's next consultation being around for AI and treating humans fairly.

(02:18): I don't know well seriously how would I answer that question. So I get where you're coming from. Treating customers fairly in my eyes made a lot of deference to the market. I think it was a real force for good. I think that particularly if as a firm you're treated seriously, didn't just treat it superficially, then it did lead to better customer outcomes.

(02:40): But I do get where you're coming from the that part of regulation you could, if you wished, to treat the customer as a model customer, you could assume that everyone was going to act the way that you thought they should. In theory, they were all going to make the right decisions and that life would unfold as you as you planned.

(03:11): And perhaps that, of course, that isn't what happens. That's not what being human is about. So I suppose the consumer duty does take us a step forward. And also importantly, it requires all firms to level up so you can no longer treat things at the very basic level, every firm will have to level up. And one of the areas that consumers duty really focuses on is vulnerable customers or customers with vulnerabilities.

(03:27): And you could argue that that having vulnerabilities is what makes us make us human. So the FCA will expect us to be able to identify where a customer has a vulnerability to adapt our approach, where they have a vulnerability. And let's face it, all of us will have a vulnerability at some point. So this isn't a niche topic.

(03:48): This goes right across the whole market. Yeah, and a lot of the time when people are vulnerable, they will behave in different ways. They will behave not as the rational individuals that may have assumed they will act in ways that may not be in the best short term interests or the better long term interests. So under consumer duty, we've got to take that into account.

(04:11): And so that, again, I see where you're coming from. It's treating the individual more as a human and less as the model consumer. So the FCA invites us to reflect, however, the precise words were to consider, to reflect how consumers behave in the real world. Is that right? Yeah, there's something like that. In fact, I think as part of the describing the whole principle, we talk about that being a requirement on firms to consider how customers behave and transact in the new world.

(04:48): A couple of examples of what that would mean in practice, as if we as a product manufacturer are designing a product, or indeed, if an adviser is designing an advice service, then the FCA expects us to test that in advance. To carry out scenario testing as to what that might deliver, but as well as testing in advance, they also expect us to check afterwards that the product did deliver, as we had to expect it to, or the people who we thought we'd buy the product are buying the product.

(05:18): Another example is for an important piece of communication that we are issuing Again, we should be testing that in advance for understand ability, but also after we need to test how a consumer has taken on board that information and practice that they react to, they behave in the way that we expect them to. And if not we really should think again and try to improve things.

(05:41): Yeah, I see. Yeah, that's quite a quite a challenge. Quite a complex area that it invites us to explore there. And one of the things that we are talking about when we are talking about the traits of a wellbeing maximizer is really the need of a wellbeing maximizer to instill a future oriented mindset or instill a future oriented behavior.

(06:05): And of course, one of the things as well that the FCA is encouraging us or forcing us nudging us to do is to avoid foreseeable harm. And I'm wondering this there seems to be a connection there between, you know, future oriented behavior, long term mindset and avoiding foreseeable harm. Do you do you agree with that? Yeah, absolutely. When I first read the consumer duty and proposal form that really leapt out linking into what we've been talking, what you've been doing around the whole concept of financial wellbeing and hoping that mindset and quite clearly that is a big link between helping individuals picture their future self and helping them avoid foreseeable harm.

(06:50): Now if you as a consumer had never thought about your future self how on earth are you going to engage in that concept of what could be a foreseeable harm to you in practice. So I think it's really important to be able to talk to customers through what they are aiming for, how they picture the future self, what's going to make them happy in future, and therefore how are they goint to have the money to live that life that they want.

(07:14): They want to live. So a very clear, clear link up there and foreseeable harm comes at all shapes and sizes as well. Foreseeable harm could arise because you've designed a product or service and a flawed way so actually becomes harmful at some point in the future. It could be that you've designed it for too broad an audience.

(07:36): And there are some groups within that that audience for whom that product could create a foreseeable harm because it will no longer meet their needs. And so that's one aspect. The other areas are that your circumstances could change so picture knowing how your future self will evolve. If you've not thought that through, then then something that changes in you or your circumstances could create that foreseeable harm and there are also foreseeable harms coming from the external environment.

(08:04): And how that's changing, now let's face it, that has changed out of all recognition over the last few years. So lots of different foreseeable harms and I don't think that many consumers could on their own picture the future self join up these forms of foreseeable harm and work out what to do with that. So to me that's a key role for the adviser on an increasingly important role.

(08:29): As we live more and more uncertain lives, the consumer duty to talks about delivering good outcomes. But you can't just think about the very end point and say, well, as long as it's ok at the end, you really need to be thinking about that journey along the way and how you can help an individual, particularly if you're offering an ongoing service to them.

(08:48): It's really important that you're alert to not just the foreseeable harms that you saw at the out set, but that you go on that journey with them and you identify an new Foreseeable harms that emerge as part of that relationship. While the consumer duty does see that we are all under an obligation to help and support people meet their financial objectives, financial objectives are certainly important, but I'd be very surprised if the FCA were divorcing the financial objectives from the broader life objectives.

(09:20): So you will have some clients who might say I just want more money, I want you to increase my wealth, I want you to maximize my investment performance and I want you to save as much tax as possible. But I think that most advisors would want to look below that or around that to work out why is it that you want these things to happen and to get more of an understanding of what life objectives that will help deliver?

(09:49): So I think that if you as an adviser or any firm and you focus solely on the financial aspects, I think that would be risky. I think that's probably only part of what the FCA is now expecting. I think one skill, which I'm sure advisors are already very skilled at, as is empathy, and it's about emphasizing not just with financial goals but broader life goals.

(10:13): And part of tha is about listening, listening, not just to what an individual client is trying to achieve, but also to get an understanding as to how they react when information or advice is positioned in a particular way. Sometimes advice can be quite scary and the natural reaction to things that scare you is just to try to run away from them and it would be a really bad outcome.

(10:35): It certainly wouldn't be a good outcome if clients were ignoring the advice which their adviser was giving them. So that's another important aspect. That's on the 1 to 1 basis. I think if you look at this across client banks, I think what the FCA actually may be looking for is for all of us to get better at understanding behaviours, to have greater behavioural insights into how groups of customers might act.

(10:58): I know again, we all have those inherent biases. In the past, there's been a lot of attention given to information asymmetry, and the focus tends to have been on making sure that firms didn't abuse that and use the information asymmetry to take advantage of the customer. Really pleased to see that the consumer duty, while it still has a bit of that, is also looking at how we can use behavioural insights to a positive.

(11:29): So the more we understand about how consumers may react or behave, the more we can serve their purposes going forward. Yeah, So I think if I was to come back to your initial question about is it consumers, is it humans, when the consumer duty first came out, lots of people asked me what's the difference between treating customers fairly and the consumer duty?

(11:50): And perhaps you've hit the nail on the head here that perhaps consumer duty is not just treating customers fairly, but also treating them as humans. Hmm. Great. Now, thank you so much. That's a great clause. And we've come full circle, so thank you very much for that, Stephen. That was the session on the regulatory context that paves the way for the wellbeing maximiser that chimes in really nicely with the content that we have created on the traits and skills and approaches techniques used by a wellbeing.

(12:21): Maximizer You mentioned empathy, you mentioned listening skills, you mentioned an understanding of mental shortcuts and biases and how they impede or facilitate progress. So thank you very much. Again, that was very useful. Thank you for watching.