To Meet The Expectations of The Consumer Duty, Your Communications Need to Increase Consumer Understanding, Engagement and CX
Communications are an integral part of the Financial Conduct Authority (FCA)’s Consumer Duty, the first part of which comes into force in the UK on 31st July 2023. For customers to receive good outcomes they must have a clear understanding of the products and choices available to them as well as the potential benefits and risks.
The main issue with Consumer Duty compliance is communication with clients, according to Lang Cat founder Mark Polson1. A diverse range of consumers should have access to products that are suitable and provide fair value. Firms should use communication to:
The expectation is that each firm will be able to report on consumer understanding and include this as part of their Consumer Duty reporting. Tracking and reporting on key performance indicators will enable a firm to monitor and improve customer understanding and outcomes.
So where should you start? Reviewing your customer communication plan is a great way to get going, so read on for more detail or skip to the end to jump straight to the action list.
Help Customers Understand Their Choices
To meet the expectations of the Consumer Duty, communications should be tailored to help a customer understand as much as possible about the options available to them. How much the communication is tailored depends on whether it is a high-volume communication or a one to one. For example, an adviser would be expected to provide detailed explanations and context for a customer on a phone call:
“If advisers simply pass on to their client’s material which they cannot possibly be expected to read and then to make decisions on the basis of that material, they will have “failed” in upholding the spirit of the Consumer Duty.” 1
For years firms have made terms and conditions more and more complex as they look to cover every possible scenario, but there will now be pressure to make them more concise and easier to understand. Even if they are not shortened it will be the adviser’s responsibility to make sense of it all for the customer.
A communication detailing a product update which is sent to a large number of customers should be personalised, but would not need to be tailored specifically to that customer’s needs. Although, from a customer experience point of view, the further you can go with personalisation the better.
The design and layout of a communication, selecting the right channel and timing are all important. Personalised video is an excellent way to educate and engage customers on complex products and, with detailed management information, can help businesses demonstrate improvements.
Discover how an effective Customer Communications plan can help your organisation engage customers in ways that are frequent, targeted and interactive and available on demand – in the customers’ channel of choice.
Eliminate or Reduce Foreseeable Harm
As part of their gap analysis, firms will be expected to identify products or services that are not providing a good customer outcome. Where appropriate, a customer should be sent a communication to inform them that an alternative product or service is available. Whilst it is not the Duty’s intention that products and services be removed, this may well be a natural consequence of the regulation.
“Depending on the context and the scale of the harm, firms looking to address an identified issue could start by amending their communications, testing consumer understanding and monitoring outcomes before trying other actions.” 2
A good place to start is with any low hanging fruit. One example of this would be communicating appropriately that a product switches to a more expensive rate after an introductory period. This could be a mortgage rate or the interest rate on a credit card. A communication or series of communications making sure that the customer understands the changes is recommended. If reporting shows that a customer does not read an email, the communication could be sent by an alternative channel such as post. A true omnichannel solution with detailed MI reporting will best enable a firm to communicate effectively with its customers.
Focus should also be placed on identifying which products or services, if any, are causing the most harm to the consumer. For instance, customers could be unaware that they are paying far more than the typical rate for a product. It is the responsibility to make sure the customer understands this and offer alternatives wherever possible.
Meeting The Regulator’s Expectations
Firms should look at communications as a whole to ensure they meet the expectations of the Consumer Duty. This will include reviewing every form of communication with a customer whether that be verbal, digital, or physical. The context of a communication is important. A firm should try to understand as much as possible about its customer base at a broad level. The selected communication channel and format should be suitable for the customer. The Duty raises the standard of care for all customers and should be viewed alongside the guidance on fair treatment of vulnerable customers (FG 21/1) 3.
The FCA has highlighted that the number of vulnerable customers is higher than most people appreciate, with one in seven adults having low levels of literacy and one in three demonstrating lower levels of numeracy. There is plenty of room for improvement in how firms communicate. Communications could be made more concise, easier to understand, and more accessible. Relevant information should be sent over the right channel at the right time.
If a customer has opted out of marketing communications, that is their prerogative. There is no requirement to market new products to them under the Duty. However, it may still be appropriate to communicate more general information within a service message as long as this does not contravene GDPR, Data Protection and PECR laws.
Measuring Success“We want firms to be able to demonstrate consumer understanding – because they have tested it and made improvements to their communications, where appropriate, to support good outcomes.” 2 The Duty suggests three ways to monitor: The Financial Lives Survey (conducted by the FCA), the number of consumer complaints and utilising firm management information. Rich management information on the delivery, receipt, and engagement of all forms of communication will help firms to fine tune their processes and communications. Surveys and customer satisfaction scores will provide further information that can be used to measure and improve.
Where to Start – Action List
- It is always tricky knowing where to begin but here are our suggestions:
- Review customer journeys
- Review your customer communication plan
- Offer alternative channels and formats to vulnerable customers
- Look for signs that a channel is not sufficient to meet a customer’s needs
- Make it easier for customers to engage in two-way conversations
- Review and simplify terms and conditions
- Review and update data collection (including predictive analytics)
- Review MI
Let’s discuss your Consumer Duty-related review and how we can help