A greater understanding: Financial services and the consumer duty

Consumer duty
This year has seen the full introduction of the consumer duty by the Financial Conduct Authority (FCA). The consumer duty broadly sets higher and clearer standards of consumer protection across financial services and requires firms to put their customers’ needs first.

Faith Kitchen, customer segment director at Ecclesiastical Insurance, said the introduction of the consumer duty had a big impact on projects, with more time needed to make sure new features took the duty into account. “There is still so much more that has to be taken on board and so much more we need to do with the team to make them realise we are going to have to build in time for testing, and that this will happen every time we make a change to a product or a launch,” she said.

“It is not going to be a tick box exercise – customers are not necessarily going to come back and say ‘that’s great’, so you need to build in time for testing and changing afterwards.”

Kitchen added that prior to the duty “no one actually owned consumer communication within our organisation”, an issue that has since been addressed.

Jeremy Mugridge, marketing director at Quilter, said that research had shown that improvements to documentation and information booklets for consumers at the company had had a demonstrable positive impact, and was helping to show the FCA Quilter’s adherence to the consumer duty. “We know that we have seen a 20% uplift in understanding comparing the old document to the new one. It is simpler, more engaging and people prefer it. People won’t read it if it doesn’t look very good.”

Understanding the consumer
The introduction of the consumer duty has also led to an increased focus on understanding the different types of consumers financial services firms have. Sam Robertson, director strategic insight at Differentology, set out work with HSBC to create customer profiles and examine their approach to investment, ranging from conservative savers to greater risk-takers.

One segment had a high risk tolerance but a lack of knowledge, which created anxiety about deciding what financial products to take out. “That’s a segment that is very open to some sort of intervention, as they want to make a leap into the unknown but don’t know how to do that,” said Robertson.

The research was carried out across 12 markets, which helped understand national differences; for example, Australia had twice the global average of the most conservative financial behaviours among consumers, while in the US there were more risk takers.

Brittney McGeough, customer insights manager at HSBC, said the profiles had been well received within the firm. “We are on a journey to embed customer centricity and insight-led decisions more. You could tell they were excited to have this type of data and we’re proud of it and want to embed it into everything we do.”

Rebecca Harries, research director at Flume, set out how the company had helped investment and financial advisers understand their customers better to tailor advice more effectively. “Not everyone follows the same path through life,” Harries said. “People’s goals and needs will change over time. Understanding what those key goals are at different points on the journey gives advisers a much clearer way to help guide and manage their client’s investments.

“Evidence-based information gives clients an additional layer of understanding about how their own plans might shape up in the future and provides an additional level of confidence in the information their adviser is providing them with.”  

Cost of living
The past two years have been hard for many consumers, with high energy prices, increasing mortgage payments, soaring inflation and rising interest rates stretching household budgets.

Jenny Lovell, head of UK insights at eBay, told the conference that times were still likely to remain tough. “It is going to get worse before it gets better. I think people will splash out at Christmas, especially after they feel they have been holding back and denying themselves for so long. Then January will be a really tough month, and it will hit people hard.

“We keep hearing that there has been a crisis, but that people have been ok as they have been spending savings from Covid. They are depleted now. I feel like next year will be equally hard, even though inflation might come down and interest rates might stop rising.”

Neha Mittall, practice director at C Space, said people were making decisions in some areas that affected other non-related businesses – for example, keeping a streaming account subscription would mean cuts elsewhere. This meant brands needed to understand their consumers better. “Brands need to listen and learn,” said Mittall. “Are you feeling the same feelings I am – are you standing with me and by me?”

Financial literacy
Mittall added that brands could offer education on financial literacy to help consumers navigate a tough economic period, saying that “there is also a massive gap around financial literacy that isn’t just about how we manage our money now – it is not in schools or in colleges”.

Sarah Emmerson, insight manager at Visa Europe, said: “The majority of consumers we asked said they were not thinking about financial education, as they thought it was about investments or pensions, when people are focused on their day-to-day.

“Financial education can be around those questions of how you can better live today. There is a lack of understanding of the breadth that financial education can enable.”

Ric Tizard, head of customer insight at Nest, told the conference that researchers could help people understand how investments work and help them understand the tangible benefits and how it can help their finances. “A lot of people don’t really get the concept of investment, especially around pensions,” he added. “A lot of people think a pension is like a savings account that earns interest.”

The conference heard that among Gen Z consumers, one in four would trust a bank for information on finances, while social media is fast growing as an alternative, with 35% using YouTube videos to learn about money and finance and one in six looking at similar videos on TikTok.

Kathy Ellison, director at Savanta, said that “Gen Z seems to be less cynical about brands than previous generations”, and noted that while they were using social media for information, they had a healthy dose of scepticism about its reliability.  “While YouTube, TikTok and influencers are where they turn to, when we ask who they trust as a credible source of information, 72% would trust a financial expert and 69% a financial services provider, but only 12% would trust TikTok and 7% an influencer,” she said.

“Firms do have a genuine opportunity to engage to build on the base of trust we’ve got, avoid negative headline stories and make sure they understand the importance of brand.”