One in seven adults have literacy skills at or below those expected of a nine- to 11-year-old, according to a Government survey
Companies in the finance sector need to change the way they speak to customers in everything from adverts to Ts&Cs – it’s time to make finance simple.
Although the customer is supposed to be king, this isn’t always the case when it comes to talking about money and personal finance. Despite financial services firms working hard on their communications and product information, the industry watchdog isn’t entirely happy with the end result.
“Some firms present information in a way that is misleading or difficult to understand, which makes it harder for consumers to make a timely and informed decision,” says the Financial Conduct Authority (FCA). It also considers that some firms are:
- Still selling consumers products or services that aren’t right for them
- Offering poor-value products
- Providing inadequate customer service and support
Now the FCA is doing something about it. It’s putting in place tougher new rules, giving the finance industry what it calls a new consumer duty to better protect customers. So, what is this duty and how can it be fulfilled?
Putting customer needs first
The FCA couldn’t have spelled it out more clearly – financial services companies must “put their customers’ needs first”. In other words, they need to make finance simple.
According the new rules, this means that consumers should:
- Receive communications they can understand
- Get products and services that meet their needs and offer fair value
- Get the customer support they need, when they need it
Who does it apply to?
Any firm which provides financial services or payment services, and which deals with retail clients, must consider what the new consumer duty means for them.
What will it mean in practice?
The FCA wants companies to deliver good outcomes for consumers. It sets out its expectations for what financial firms must do in four key areas of the customer relationship:
- The governance of products and services
- Price and value
- Consumer understanding
- Consumer support
We’ll leave the discussions about governance and fair value to the pricing, product and legal experts. Here we’ll look at what the consumer duty means in terms of communications needs and customer support.
The FCA says delivering a good outcome for consumers sets a higher standard than is currently set out in its Principle 7.
This states: “A firm must pay due regard to the information needs of its clients and communicate information to them in a way which is clear, fair and not misleading.”
So, what does this higher standard look like?
Firms must now act to prevent foreseeable harm by explaining any terms of service and significant risks “in a way that customers are likely to understand”.
While this obviously focuses on marketing activities, financial promotions and the pre-sale customer journey, it’s not confined to them. The care mustn’t stop once the customer has bought the product or service – it has to continue throughout the product cycle – with customers being prompted into action to help them avoid something that would negatively impact them. For example, it outlaws ‘sludge’ practices that make it hard for customers to switch or cancel.
Firms will need to look at their customer journey and check across all their communications – websites, product materials, letters and emails – to make sure they’re fulfilling the requirements. They’ll also need to look at how well complaints are handled and what more can be done to prevent similar issues in future.
A close eye will also need to be paid to the press – for example if the media exposes new potential problems, there’s now an expectation that firms take appropriate action to mitigate the risk of harm to consumers. This could be anything from updating the design of a product to changing advice to a customer.
It’s not going to be a one-size-fits-all situation. Communications must be tailored to consider the needs of customers at the receiving end including:
- Any characteristics of vulnerability
- The complexity of products
- The communication channel used
- The role of the firm
Where complex information has to be provided because of disclosure requirements, firms must think about what they can do to support customer understanding. For example, the FCA suggests a layered approach to provide context or explain key information in a simple way. This could be a cover letter, which also signposts more detailed information that consumers may want to consider or may be helpful at a later date.
Avoiding behavioural biases
The FCA says firms must avoid communicating in a way that ‘exploits consumers’ information asymmetries and behavioural biases’.
This applies to situations where communications encourage customers to make decisions without possessing all the relevant information.
For instance, the FCA identified poor practices around charging information on investment platforms, including:
- No succinct, comprehensive list of charges clearly signposted
- Information spread out across different webpages
- Too many links to different sections and pages
- No clear statement of the interest applying to any cash held
- Information ‘hidden away’ in legalistically worded terms and conditions
Other examples of poor practice include things like too much focus on benefits and not enough on risks.
A channel-agnostic approach
Firms use many different channels to provide customer support, including telephone, email, in-branch, text, webchat and video calls. The FCA isn’t prescribing which channels firms must offer, but they must make sure the support channels they do use meet the needs of their customers. This includes customers dealing with nonstandard issues, and vulnerable customers.
While acknowledging that many of us now use mobiles to organise our finances, the FCA also understands what that means in reality. We’re much less likely to read lengthy disclosure documents when applying for a product on a smartphone. Because of this, firms will need to consider how much content the customer is likely to meaningfully engage with on mobile and what more they need to do so they can make a well-informed decision.
The FCA takes a dim view of firms that have long call-waiting times for customers trying to resolve problems. It says customers should not wait significantly longer for their call to be answered in relation to a post-sale issue than they would to take out a product or service.
Similarly, firms may find they have to respond more quickly when customers contact them on social media.
Better one-to-one communications
When interacting one-to-one with a customer, firms must tailor their communication to meet the information needs of that customer. They need to ask them if they understand the information and if they have any further questions.
Financial firms should test, monitor and adapt communications to support understanding and good outcomes for customers.
One requirement is that where firms test comms to for effectiveness in maximising sales, they must do equivalent tests to check that consumer understanding levels result in good customer outcomes.
Firms will also have to make sure that their monitoring and feedback loops are working effectively. For example, if it becomes clear from call centres or complaints that customers are frequently asking the same questions or there are issues commonly causing confusion, firms may need to clarify these issues more broadly.
What good communications look like
The FCA has set out how communications with customers can be improved. It expects communications to be:
- Layered – key information is provided up-front with links to more detailed help. Where the customer needs to make a choice about a product or service, the key information is likely to include the key features, benefits, risks and costs of that product or service. When layering, firms should make sure the information they provide is coherent and consistent.
- Engaging – communication must be designed to encourage users to engage. The FCA says key information should be easy to identify. “For example, by means of headings and layout, bullet points, display and font attributes of text.” Tables, graphs, diagrams, graphics, audio-visuals and interactive media can also be used to improve the effectiveness of communications by making them more engaging.
- Relevant – firms should consider the appropriate level of detail for each communication. The target market for a complicated investment product may have different information needs to the target market for a simple, mass-market product, for example.
- Simple – information should be presented logically. Jargon or technical terms should be avoided. If that’s not possible, they must be explained “in plain and intelligible language that consumers are likely to understand”.
- Well-timed – information should be provided at an appropriate time or touch point. For example, costs should be shown early in the customer journey and in easy-to-read ways rather than in the fine print.
Getting it wrong
Examples of poor communication cited by the FCA include:
- Banks that encouraged customers to focus on the daily cost of an overdraft rather than the cumulative cost of borrowing.
- Funeral plans that didn’t talk enough about the downsides, such as the increased costs of paying by instalments, or that the plan might not provide a funeral service.
What’s the deadline?
Firms have until 31 July 2023 to meet the new requirements for current products and services.
Then, in July 2024, the duty will come fully into force, and apply to products and services held by existing customers but not open to new consumers too.
While the first deadline isn’t until next year, there’s a lot that needs to be done to make sure your communications meet what’s required.
1. Put a plan in place
With appropriate board level buy-in and monitoring to make sure you are on track.
2. Check your customer sales journeys
Make sure that customers have all the information that’s needed in one place, defaults are appropriate, all options are fairly displayed and that information necessary for decision making isn’t hard to access and it provided at the right stage of the journey.
3. Audit your communications
Everything from call centre scripts, brochures, booklets, customer letters and web pages to see which need updating and amending to be compliant.
4. Rewrite where necessary and tailor to your audience
Communications need to be appropriate for the information needs of the audience based on the product, the financial capabilities and vulnerabilities of the intended audience.
5. Test your communications
Make sure they are understood by the customers they are aimed at and then revise and update where necessary.
6. Monitor to ensure that your communications are supporting customer understanding
This may be via call centres, complaints, customer feedback, press reports, social media and more. Follow up where necessary. Make sure you are creating and keeping the right level of management information to enable board-level scrutiny and enable you to identify areas that may need addressing.
How can Sticky help?
Sticky has been working with financial firms for 20+ years to make their communications clearer and more engaging. As well as copywriting, we can audit your content, put forward strategies based on FCA guidance, create animations and video content and improve your UX and customer journeys too. Learn to build better connections – get in touch today.