What does Consumer Duty mean for communications?
“Communication works for those who work at it” (John Powell)
We already know that FCA Principles 6 and 7 (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) will be disapplied and replaced with the Consumer Duty Principle “A firm must act to deliver good outcomes for retail clients” where the Consumer Duty applies.
The FCA commented that the new Principle builds on and goes further than Principle 7 by requiring firms to:
- Support consumer understanding by ensuring that their communications meet the information needs of retail customers
- Ensure communication is clear, fair and not misleading
- Communications are tailored to take account of the characteristics of the customer (including vulnerability)
- Ensure that information is accurate, relevant and provided on a timely basis
- Communications should be checked for customer understanding
- Communications are tested monitored and adapted to support good outcomes for retail clients
The FCA wants customers to not only be given the information they need, but the information that they need at the right time and presented in a way that they can understand.
So, what will firms have to consider? After all, effective and transparent communication is at the heart of every successful business relationship.
From a provider’s point of view, we can envisage that more consumer testing will take place before product literature is released, perhaps we will also see a greater use of presenting information in a question-and-answer format (which the FCA said, in CP 21/36, improved customer understanding by 35%).
One unintended consequence of the Consumer Duty could be that we see documents from product providers getting longer, as they reword them perhaps through organisations like the Plain English Society.
Providing the right message at the right time in the right format for distributor firms
Firstly, firms will need to decide all the communication channels that they use to communicate with potential, new and existing clients, these could include:
- Social media posts/ blogs
- Stationery/ business cards
- Information presented within their website
- Financial promotions
- Disclosure documentation and GDPR disclosures
- Verbal communication during 1-2-1 meetings
- Suitability reports
- Suitability review reports/ fund valuations and statements as well as other non-written communication when dealing with phone and email enquiries
An SMF16 will want to keep tight control and oversight of social media posts/blogs (ensuring they are generic in nature and do not contain any specific advice) as well as website content (checking for accuracy and again providing generic information setting out clearly and accurately what the firm is about, and the services and costs involved).
Websites are also required to provide specific details about the firm’s authorisation and FOS details. We can anticipate here that even greater use will be made of third-party compliance support firms as firms try to ensure they stay within the (not inconsiderable) rules.
Financial promotions need to be targeted towards a relevant audience and as well as being fair, clear and not misleading. They must also contain balanced information between the risks and rewards of any particular proposition. Again, few SMF16s will want to ‘take on’ the rule book and will probably want to refer promotional material to a third-party support firm.
A robust training and competence plan will ensure that advising staff are being regularly assessed in how they go about asking questions (at a factfind interview) and presenting complex information when going through the key facts documents with clients, along with their general approach to answering client questions.
Disclosure documents can and should be regularly reviewed and here firms can ask their most junior staff and clients to test their effectiveness by reading them and then explaining back exactly what services they expect and how much they expect to pay for them. Any difficulty or misunderstanding heard in that explanation will indicate that the firm hasn’t managed to convey their key messages effectively.
The first and most obvious communication channel that advisory firms will think about when considering communication are their suitability reports.
From their beginning these letters have been fraught with complexity and Regulator criticism. Initially being called ‘reason why’ letters (they were criticised by the Regulator for being reason ‘what’ letters, in explaining the advice itself in minutia of detail but omitting exactly ‘why’ the advice being given was suitable).
Nowadays, firms are likely to be criticised that their letters are too long, complex and impersonal.
So what can firms do to embrace the objectives set out by the FCA?
It’s certainly true that lengthy and technical communications can overwhelm clients, however well-written concise reports can help customers become more informed.
Firms have choices to make here and small changes in report style can significantly improve the chances that the report will be read, understood and valued. So things like the following can really make a difference:
- Using plain language and bullet points
- Using tables
- Avoiding adviser talk or jargon
- Only using specific relevant risk warnings (and not all risk warnings)
One example, as good practice, the consultation paper provides is that of a ‘cover sheet’ which clearly sets out the key information upfront and signposts to further details in the package.
It’s clear that the FCA expects ever-higher standards when it comes to communications - providers and advisory firms would do well to look out for future updates about communication if they want to remain one step ahead.