Consumer Duty and fair value: where are you now?
With less than three weeks to go until firms need to have a Consumer Duty Implementation
After Nick McGruer, Head for Advisers, Wealth and Pensions at the FCA shared that independent financial advisers will soon receive a ‘Dear CEO’ letter about delivering good advice, amongst other points, the time is now to make sure the consumer understanding outcome is top of your board’s agenda.
TCC’s Associate Director, Neil Dethick explores three important points about the consumer understanding outcome.
‘A firm must act to deliver good outcomes for retail customers’ is the cornerstone of the Consumer Duty. Firms must enable and support their customers to make informed decisions, ensuring customers are given the information they need, when they need it, in a format they can understand.
Neil explains: “This outcome applies to all consumer communications, whether that be verbal, online or in printed materials. Firms will need to carefully consider and evidence why the communications they use for a specific demographic are deemed effective. In the Duty rules, the FCA cites research that one in seven adults have literacy skills at or below those expected of a nine to 11-year-old. So, if a product or service is designed to be relevant to the mass market, the FCA will expect this point to be taken into account.”
Firms will also be expected to grasp their customers’ needs and make appropriate product recommendations, whilst also ensuring customers understand the product they’re buying. For example, complicated contractual language is an unnecessary barrier to consumer understanding.
Trial and testing
Consumers need to be equipped to make effective decisions regarding their personal finances. This means that firms will need to give consumers the relevant information, at the right time and in the right format, so the consumer understands their options and make the most suitable decision for their circumstance.
Neil recommends thorough customer communications testing: “To deliver this, testing is the key to understanding what information is right for a consumer and when. The embodiment of the consumer understanding outcome is what works in practice. The best way to demonstrate this is to review and test communications and continually make improvements. A key question that firms should ask of themselves is ‘is this communication relatable?”.
Product or service communications for consumers should be clear in their benefits, costs and associated risks, as well as detailing what actions are required of the consumer, and what the consequences of any inaction would be. Clear signposting to any additional information or support also needs to be included.
The FCA states: “One question firms can ask themselves is whether they are applying the same standards to ensure their communications are delivering good consumer outcomes as they do to ensure their communications help to generate sales and revenue. So, where firms conduct consumer testing of communications to determine an effective approach to maximise sales, they should use testing capabilities of an equivalent standard to test other aspects of consumer understanding to ensure good consumer outcomes. “
Support for the vulnerable
The Duty places great emphasis on safeguarding customers from making decisions that don’t best serve their needs. Firms will need to evidence their commitment across all levels of the business process and customer journey, with a precision from staff in identifying customers’ needs and properly addressing any unique points of vulnerability.
Neil comments: “Firms need to give careful thought and rigorous process to how they’ll best serve vulnerable customers. Given the vulnerability factors evolve throughout a consumer’s life, how a firm plans to keep on top of any changes to a customer’s situation and provide extra support needs to be a component of vulnerable person’s policy.”
“The channels used to communicate with a customer should be appropriate for the target market. For instance, equity release customers tend to be an older demographic and so may be less comfortable using apps and online mediums.”
Neil continues: “Conversely, more anxious customers may feel uneasy about phone conversations and prefer the degree of separation digital tools offer – so it’s key to provide enough choice to allow your target market to confidently access the support they need, where they need it.”
Learn more about the key steps your firm should take to prepare for the Consumer Duty’s four outcomes in our latest white paper: ‘Prepare for the FCA’s new Consumer Duty and achieve positive outcomes through compliance’.
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