In financial services ‘innovation’ is at risk of becoming another overused buzzword. That doesn’t mean we shouldn’t take it seriously. Without innovation customers vote with their feet and businesses fail.

The problem with the term is that it means different things to different people. In our sector, innovation has often meant dreaming up complex product structures designed to outsmart competitors, with little thought for the customer.

But regulation such as the RDR, pension reform and pension flexibility has changed that. It’s often cited as the reason for the lack of innovation. In fact, the opposite is true. Regulation has helped wipe the slate clean and contributed to demand for providers to get the basics right and re-focus on customer needs.

Innovation is no longer about how complex we make products, but about how we make the complex simple.

If we listen to consumers, it’s clear what the market needs.

People will struggle in the face of complexity and consumer inertia is the kiss of death in any sector.

The long-term impact of auto-enrolment means average pot sizes will increase as people engage with their savings. Pension flexibilities mean more choice at retirement. This combination should drive:

  • Innovation that makes it easy for customers to access what they need, when they need it. Whether that’s cash from small pots at age 55 or a blend of income and longevity insurance when customers hit their 70s.
  • Product innovation that provides easy to understand income options that blend guarantees and investment flexibility.
  • Tools to personalise risk and mortality and help manage income levels and tax.

The message to proposition teams is simple: Create personalised journeys and value for money products that make it simple and easy for customers to move through accumulation to decumulation.

And for those wrestling with legacy systems this may feel like an impossible task. The reality is that the market continues its shift to platforms with a downward pressure on price. Pension flexibilities and the new rules on inherited pension wealth have given a boost to the SIPP market and platforms give customers access to further investment growth at retirement.

Proposition teams wondering where to focus their development spend should consider this; it may be tempting to bolt on new developments to existing products on legacy systems to tick the innovation box. But there’s a risk of locking in inefficiencies that damage profitability.

To create the environment for innovation and reduce costs, providers must focus on operational efficiency and building scale. Our sector is about the long term and there’s an inevitable need to migrate to new technology over time.

For proposition teams, that means future proofing customer propositions by investing in modern flexible technology that supports configuration and personalised journeys. Technology that supports simple product design and a focus firmly on customer needs is a must to see genuine innovation in the market.

About the author

Nick Baggott


Based in our London office, Nick has over 25 years of experience in the wealth management industry, working in various senior roles across consultancy, programme management, development, and operations. A member of the UK propositions team, Nick’s role includes integrating market trends and customer insight into the future product innovation and strategy of our Sonata Platform.

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