If anyone was still labouring under the misapprehension that the end of July provided some sort of closure on Consumer Duty work (for those firms without closed books at least), Nisha Arora’s speech on 1 November made very clear that the FCA does not view this as a ‘once and done exercise’. In fact, if the most recent Dear CEO letter is anything to go by, the FCA don’t see Consumer Duty as ‘done’ at all…
What the new Consumer Duty has given firms is a framework to evaluate how seriously they consider customer outcomes. Will this, ultimately, bring the kind of cultural shift that the Conduct Agenda was designed to engender?
This was one of the topics that was hotly debated at the recent Europe 23 Responsible Asset Owners (RAO) conference, where our Head of Investor Governance, Dawn Hyams, was part of a panel discussing Consumer Duty.
At TWC, we tend to work most closely with product, marketing and governance teams. Many of these teams, it seems to us, were already acutely focused on retail customer needs. The challenge was that this wasn’t always reflected across their organisations. Our takeaway from the chat on the RAO panel is that, while the industry has a way to go, a culture shift is underway.
There is still huge scope, however, to do a better job of connecting with customers, and a lot to learn both from other sectors and the brands that customers trust. One significant challenge that the industry has yet to crack is talking to customers in a way that engages their interest and allows them to understand what they are in and the fees they pay. The Consumer Understanding outcome puts the onus clearly on industry to do a better job than just setting out communications that are ‘not misleading’. ‘Does your customer understand this?’ is a significantly higher hurdle. At TWC, we hope that this shift in focus will see genuine efforts on the part of industry to bring finance to life for customers.
Speaking to customers in a language they understand
There are almost too many stats to choose from to demonstrate the task ahead of the industry. In a population where literacy and numeracy standards are already working against us, the FCA surfaces additional challenges for financial services. In their 2022 Financial Lives survey, they found that a total of 18.2 million adults (34%) had poor or low levels of numeracy involving financial concepts. Those customers who exhibited one or more vulnerable characteristics found customer support of no help. And 20% of those with low capability said that provider communications did not help them at all.
Putting customer outcomes at the heart of product design and communication takes a change in mindset. Very few customers care about the mechanics going on inside a product, (even though the regulations mean you have to tell them some of that), they just want to broadly understand how it works and the risks involved. As an industry we need to learn to be storytellers – talking to customers about the things that motivate them to take an interest. That is rarely the way that the industry describes what it does.
The numeracy hurdle is also very real – for an industry that loves a stat and talks basis points on a daily basis, it can be difficult to relate to customers who struggle with basic percentages. There is a level of assumed capability that creates a barrier to understanding – all too evident in our own insight work.
How do you tackle good communications within your firm?
Knowing your intended audience is key to language clarity, we cannot assume that an audience is already interested, engaged and financially capable. Having a solid understanding of your intended audience helps you to design communications that will land.
Firms often don’t think they have many vulnerable customers, because they expect them to carry a vulnerable marker (for example age, disability or a cognitive vulnerability). The reality is that vulnerability is dynamic, and it helps to think beyond the stereotypes. The RAO panel discussed how wealthy people who are well educated are more likely to fall victim to investment scams, and/or can be vulnerable to financial abuse within families.
That said, financial capability, regardless of wealth, background and experience is a big part of the challenge, and something the industry could do if it ‘talked more like a consumer’. The average reading age that government departments write to is 9 years old. Add to that the fact that customers are often time poor or could be reading your comms at the end of a long day at work (with 101 other things vying for their attention) and it doesn’t take long to realise why customers struggle.
Yes, we do see the start of a cultural shift but the industry – a data-driven industry that loves an acronym, whose credibility is built on demonstrating intellectual property and where complexity reigns – has a lot to learn.
Our recent Consumer Understanding – shaken but we’re not stirred White Paper offers practical advice on how the industry can move the dial on communications. Download your copy today.