In the interest of reducing cost and liability, financial services companies have started withdrawing from the advice market and are requiring non-high net worth individuals to bear responsibility for their own financial decisions. This trend is similar to a trend in healthcare called “patient empowerment,” where doctors no longer make a recommendation for a course of treatment, but instead list various options with the pros and cons, and expect the patient to make a decision. Though this practice sounds like it allows the patient greater control, it is effectively pushing the decision-making process off to the least informed and, more likely than not, the most-confused participant in the process. It also creates a very stressful situation.
Concurrent with the growth of this “hands-off” approach, there has been an exponential increase in the number of investment options being offered to individuals. While this trend (along with its significant drawbacks) can be seen most clearly in the retirement services line of business, it is present across the wider financial services industry. For example, in insurance, many policies come with a myriad of add-on options. Similarly, investment management companies may offer dozens of funds to retail investors.
While the longstanding objective of financial firms and intent of this approach is to improve customer satisfaction by providing access to more options and bolstering individual empowerment, the result has been quite the opposite.
In a new guide, we discuss the issues that stem from offering clients too many choices, as well as several concrete steps that can be taken to address them. You can download it here.