Addressing Consumer Duty blindspots: A new agenda for the new school year

The FCA shared its first end-of-year Consumer Duty review at the very moment that many financial services executives were packing their bags and jetting off for their summer break. As they return to work, with their holiday glow already fading, they’ll find plenty in that review to add to their to-do list.

Unsurprisingly, the FCA found that improvements are still needed. What’s more, the FCA expects to see continuous improvement. Firms that take a ‘once and done’ approach risk drifting out of touch with their obligations.

The hottest topic remains the Price and Value outcome. In other words: are your customers getting the value they should reasonably expect for the price they pay? The FCA is concerned, especially, in the investing and wealth sectors.

‘We’re focused on price and value as we know this is an area firms have found challenging,’ said Sheldon Mills, FCA Executive Director of Consumers and Competition, in ‘Taking the leap on the Consumer Duty’.

What’s more, the FCA characterises this challenge as a failure to comply.

Sheldon Mills again: ‘Many of the harms of poor value are exacerbated by firms’ lack of compliance with consumer understanding or customer support requirements, for example by using complex product terms and conditions, or opaque fees.’

This was echoed by Abby Thomas, CEO of the Financial Ombudsman Service, who said that it is not enough to point unhappy consumers to impenetrable T&Cs or information that featured somewhere in a sales journey they navigated months previously.

Many financial services firms are still at risk, despite the work they’ve done. To fix this, senior managers need to understand why their efforts have missed the mark.

In the run up to the Consumer Duty, and over the past year, we’ve seen two problems that make it harder for firms to address their obligations effectively.

First, the ‘curse of knowledge’. When you talk about something every day, you quickly become used to it. You assume that what you know is obvious to everyone else, though it isn’t. Experts and actuaries should not design customer communications. And the those communications should always be tested with customers.

Second, incomplete reporting. Many senior managers judge their communications’ compliance and effectiveness based on numerical data, such as demographics, usage statistics or NPS scores. These numbers reveal little about customers' perspectives, motivations, or comprehension and may be misleading. That means senior managers are unaware of trouble brewing.

These two problems mean that firms often have blindspots in an area that the FCA has highlighted as a concern. They’re something every firm should look at.

To clear the blindspots, firms need data that is objective, and that answers the questions about what customers know and need.

That means spending time listening to customers, rather than gathering metrics from websites or checkbox questionnaires. In an industry obsessed with numbers, qualitative research – using credible techniques – is the missing piece that will help reduce risk.

We see qualitative research as part of a rigorous approach to listening to customers aimed at pleasing FCA supervisors, and minimising complaints and FOS reviews.

Qualitative research does more than risk mitigation, though. Listening to customers helps drive better business performance. Improving consumer understanding is an opportunity to increase customer trust during the buying process, and loyalty after they’ve bought. For instance, our work with Cooperative Bank shows how improving consumer understanding can deliver better commercial outcomes.

Putting a comprehensive solution in place is a worthwhile goal that will deliver the continuous improvement the FCA wants to see. It’s a significant agenda item that’s likely to take from now until firms release their 2025 Consumer Duty reports.

However, Tom Scott, Experience Director in cxpartners’ Financial Services design team says that one shortcut is for senior managers to attend customer labs and listening sessions.

'Senior managers are often working on different assumptions or data about consumer understanding from the teams creating the communications. This means the right actions aren’t always prioritised. Attending customer listening labs with their teams gives them a common point of view and means they stand a better chance of aligning strategy and execution.'

This is a time saving trick that means the right actions get given the right priority. Meaning fewer blind spots, and faster decisions leading to better outcomes.

The ideal approach is to get on with this quick win while standing up a more comprehensive programme of qualitative information gathering.

As they return from their holidays, managers looking to avoid a tap on the shoulder from the headmaster at the FCA should put this on top of their to do list.