As AI continues to reshape how consumers discover, compare and make financial decisions, traditional advice and guidance models are facing increasing pressure to adapt. At the same time, the FCA’s introduction of targeted support is designed to bridge elements of the advice gap within regulated frameworks.
In this piece, Tim Hogg, Director and Behavioural Economist at consumer group Fairer Finance, explores how these two emerging forces, AI and targeted support, are reshaping competition in financial services and what this could mean for the future of advice delivery.
AI is transforming how consumers engage with financial services – with the potential to sidestep traditional gatekeepers, fill the advice gap, and increase competition. The rollout of targeted support promises to do the same, so which will be more successful at influencing consumer decisions – AI or targeted support?
Shopping around gets easier, and cheaper
The internet reduced the cost of shopping around by making provider websites available to consumers. Search engines helped too – by searching for ‘car insurance’ consumers didn’t even need to know the names of different insurers. Price comparison websites made it easier again, giving consumers multiple quotes based on one questionnaire.
Now, AI chatbots are in the process of transforming shopping around.
The process of prompting AI might be easier than using a price comparison website, and the outputs more personalised – making it easier for consumers to weigh price against quality on the areas that really matter.
According to Lloyds Bank, 45% of adults already use AI for insurance comparison and advice, and 37% for investment advice and recommendations. This estimate feels a bit high to me – but no one is doubting that we will soon be in a world where it’s the norm that AI is the default starting point for financial decision-making.
Some insurers are already experimenting with making their content more easily digested by AI. Unlike price comparison websites which charge providers commission, AI is currently largely funded through user subscriptions.
Ultimately, if AI sidesteps the price comparison gatekeeper, providers might save on the cost of commission. As long as the market is competitive enough, we’d expect a large proportion of that cost saving to be passed onto consumers.
The ever-improving quality of free ‘advice’
The internet widened access to free sources of information and guidance about personal finance.
Social media brought that information and guidance to your digital doorstep, without you even having to search for it.
But the guidance always stopped one step short of making a personalised recommendation. Partly because that’s hard to do at scale, and partly because that would cross a line in the FCA rulebook. This creates an advice gap.
For better or worse, personalised advice is exactly what AI chatbots are designed to provide, and AI does not appear to be held back by the FCA rulebook. I expect that this is something Sheldon Mills is looking at in his AI review for the FCA.
The advice gap is being filled, in real time, by AI – for those consumers who choose to use it and trust it. For everyone else, the gap persists.
Some will be horrified by the thought of consumers using AI to inform their financial decisions. After all, AI makes mistakes. But so do social media influencers. And Martin Lewis can’t give us all personalised advice. The genie is very much out of the bottle – we can’t go back to a pre-AI world, even if we wanted to.
The other new kid on the block
Traditional finance providers have a new tool of their own – targeted support. It allows firms to fill in part of the advice gap themselves.
Targeted support is currently framed around investments and pensions, but – if it proves successful – it could be rolled out more widely to sectors such as insurance.
So, which firms will roll out targeted support?
The FCA acknowledged that the firms best placed to deploy targeted support were likely to be ‘vertically integrated’; those operating across both savings accounts and investment products.
That’s because firms operating in multiple sectors are more likely to be able to join the dots for their customers. For example, my bank knows how much I have in savings, and therefore whether or not I would benefit from a nudge to invest more of my cash.
Larger firms are better placed to absorb the cost of providing targeted support as a free service, cross-subsidised by the other services they offer.
The FCA will need to be alive to the danger that targeted support makes it harder for new entrants and smaller players to win new customers.
More competition is usually a good thing
There’s room for both models, competing for our attention and trust.
For engaged consumers, AI helps with shopping-around and filling the advice gap. Targeted support provides another nudge to make proactive decisions about their finances.
For disengaged customers, a well-designed targeted support journey could prompt awareness and that initial engagement.
If financial services providers want to win customers back from AI, targeted support better be good. In our view, trusted targeted support journeys will use cutting-edge behavioural science to clearly communicate all the important information, while putting customers in control.
Transparent, trusted targeted support journeys aren’t just a regulatory nicety – they’re the industry’s strongest counter-move to the rise in AI.
