Addressing wealth management pricing challenges in the Consumer Duty era

Consumer Duty brings a new focus to pricing within UK wealth management with organizations now required to ensure and evidence fair value in pricing. In this article, we analyze the current Consumer Duty landscape, the new pricing challenges it brings, and how Simon-Kucher’s PricePro Run solution can streamline your ongoing compliance, enhance pricing transparency, and protect profitability.

Key takeaways

• Pricing within the wealth management industry is complex and relationship-based. It can be tricky to track and manage without adequate systems and controls.
• Consumer Duty has raised the bar on price management within the sector. Wealth managers need to respond to the challenge and up their game to continue to thrive.
• Simon-Kucher’s PricePro Run is the gold-standard price management solution within the wealth management industry. It can help to address these challenges, ensuring price-value alignment and regulatory compliance.

The impact of the new Consumer Duty

Pricing in the wealth management sector has always been complex due to the wide range of client needs and the relationship-driven nature of the business which often results in negotiation of both services and fees. Consumer Duty regulations, introduced in July 2023, now require wealth managers to ensure ‘fair value’ for the fees clients pay. This creates additional challenges and raises the bar for price management in the industry. Here, we will not address the question of “what is fair value?” as that requires a more in-depth analysis. Instead, we will assume that an answer has been reached and the challenge is now to implement that in a robust, compliant, and commercially acceptable way. Those that succeed will thrive, while those that do not risk fines, customer churn, and lower revenues.

Key challenges in implementing pricing under Consumer Duty

• Visibility of in-force pricing and associated KPIs

  The first step in ensuring appropriate pricing is understanding what is actually in force today. We find that many wealth managers lack a “single source of truth” for in-force pricing across their portfolio. When bespoke pricing agreements are combined with legacy IT systems, it can be very hard to track and monitor agreements in place. Beyond this, wealth managers are often under-invested in Management Information and few have the systems and processes in place to monitor metrics, such as price accuracy, compliance, and revenue leakage. Without this, it is particularly difficult to manage price effectively.

• Visibility of “whole of customer” relationship

  When delivering relationship-based pricing, at a customer or even a family level, it is vital to understand the value of the entire relationship. We find that too often this is managed in an unstructured, labor-intensive, and error-prone manner. This creates inefficiencies and risk, particularly as the value of the relationship can change over time.

• Guidance for Relationship Managers (RMs)

  With negotiations typically handled by individual RMs, it is vital that they are provided with transparency, clear guidance on pricing requirements, and also the tools to do the job effectively. We often find that guidance is either too loose or too strict. Strict rules are easy to apply but fail to adapt to the individual requirements that form the nature of much of wealth management. This risks not meeting customer needs or creating a misalignment of individual price/value. At the other extreme, too much leeway typically results in too much value being given away. Truly effective guidance needs to take into account multiple factors, and this needs a more advanced solution.

Simon-Kucher PricePro Run: Managing pricing to comply with Consumer Duty

PricePro Run from Simon Kucher is the gold-standard solution for price management in the wealth management industry. Installed in many of the world’s leading organizations over the past decade, it tracks client developments, offers transparency on pricing KPIs, simulates the impact of pricing changes, and triggers approval workflows if needed. Moreover, being fully integrated into core systems, any approved pricing changes will automatically be implemented through straight-through processing, helping to reduce risk and improve operational efficiency.

PricePro Run can help you:

• Monitor pricing and revenue KPIs on an ongoing basis

  With PricePro Run, you can identify and monitor clients who may be mispriced relative to peers or other reference points as identified under fair value assessments.

  You can also monitor commercial KPIs, such as effective margin, RoA, and other measures of client profitability. These values can be observed at an individual customer level and also aggregated at a RM, regional, or global level throughout the organizational hierarchy.

• Guide commercial decision-making

  Our PricePro Run rules engine can be used to create guidance and specific recommendations to RMs to adjust pricing in line with both regulatory and commercial requirements. It also allows RMs to create scenarios to see how alternative pricing scenarios would impact these metrics.

• Build robust automated processes

  PricePro Run helps you develop efficient automated processes for re-pricing and regulatory compliance. It digitalizes pricing-approval processes, ensuring that re-pricing requests and approvals are directed to the right individuals and clearly documented with an audit trail.

Regulatory compliance is often viewed as a necessary cost, however, in our experience better management of pricing can lead to a significant ROI. In previous implementations, PricePro Run has been proven to boost margins by up to five percentage points and improve operational efficiency by 30 to 40 percent for wealth managers.