Firms are already obliged to communicate in a way that is clear, fair and not misleading under the regulator’s seventh principle. But the new consumer duty, which comprises a ‘consumer understanding’ outcome, goes further.
Broadly speaking, the duty requires firms to:
- Support their customers’ understanding;
- Tailor communications, considering the characteristics of the intended customers;
- Tailor communications to meet the information needs of the customer during direct, one-to-one interactions; and
- Test, monitor and adapt communications.
“The consumer duty will require advisers to tailor communications for customers differently based on the needs of the target market as well as individual vulnerability characteristics,” says Louis Williams, head of psychology and behavioural insights at Dynamic Planner.
“Advisers can create target markets considering a range of attributes of a particular cohort of clients such as their age, wealth, willingness to take risk and views on sustainable investing.
"Defining a target market can then allow bespoke reports to be developed to meet clients’ needs."
Phil Young, director at marketing agency ClientsFirst, likewise suggests using client personas.
“They are a representation of the ‘ideal’ clients we are targeting. For a financial advice business, this might be a 55-year-old business owner who is about to sell up and wants to know how to mitigate tax; or a 67-year-old retiree who wants to know if they are likely to run out of money in retirement.
“Importantly, the persona will go into detail about what that persona’s likely communication preferences are, how they want information presented, what buttons to press and which to avoid when meeting them for the first time.”
Vulnerability not a new concept
While there are references to vulnerable clients throughout the duty, Mark Greenwood, director of compliance services at SimplyBiz, says it does not divert from regulatory guidance on vulnerable customers from February 2021.
“Having processes to ensure the fair and appropriate treatment of vulnerable clients is not a new concept and should already be embedded within firms, with policies in place for both initial assessments and ongoing reviews.
“The consumer duty reinforces previous guidance from the regulator on the fair treatment of vulnerable customers, and makes it very clear that firms can expect to be asked to demonstrate how their business model, the actions they have taken and their culture ensure the fair treatment of all customers, including vulnerable customers.”
For example, part of an initial fact-find should be about identifying coping strategies – which often people with impaired communication have developed – for each client and discussing how they can best utilise them, says Tim Farmer, co-founder and clinical director at Comentis, a cognitive assessment engine provider.
Technology is useful for tailoring communications, says Williams at Dynamic Planner.
When it comes to vulnerable customers for example, report writers can allow advisers to edit content such as by including more visuals, as well as modify stylistic features such as colour-blind-friendly palettes and larger font sizes.
Advisers also need to be mindful of the amount of information that is being communicated, says Farmer.
“The amount that a person can process and understand at any one time will vary depending on that individual’s situation and age. Research tells us that a 75-year-old can only process information at 25 per cent of the speed of a 20-year-old.