The Financial Conduct Authority's new consumer duty regulation comes into effect today (July 31) and with it comes a duty to communicate with clients effectively.
Regulated financial services providers have invested considerable time into preparations for the new rules.
While most of the focus and effort has been dedicated to ensuring that products are easy to understand, explained simply and sold to the right customers, how much effort has been put into ensuring that financial firms are communicating in a way that makes people actually read their carefully crafted information?
Two of the four outcomes of the consumer duty focus on efficient customer communication – namely consumer understanding and consumer support.
These outcomes are particularly important for financial advisers as they are the most involved in communicating with clients in an advisory capacity, so it is vital the information they send to clients is efficient, easily accessible, and actually read by the recipient.
The challenge is that, while technology and digital communication have been the answer to efficient client contact in many adjacent sectors, the existing regulation requiring communication through a durable medium does not make this straightforward for financial services.
Durable medium means that documents must be unchangeable once delivered and the financial institution cannot modify those terms and conditions.
And while there are ways to achieve this, such as sending a PDF, many firms avoid using attachments in emails due to security risks.
Another option, HTML emails, offers poor customer experience and is inflexible. Consequently, the industry has shifted towards portals.
However, very few of the messages on portals are read.
The FCA’s research carried out as part of the asset management market study found that consumers are less likely to read information that requires them to seek it out – yet we are regularly asked to navigate a portal to find that key document.
It is wrong that so much crucial financial information is not communicated in a way that engages customers in an age when banks now have access to a plethora of tools for doing so.
The new regulations state that communications should be designed in a way that encourages consumers to engage with them.
If banks and financial advisers are going to genuinely fulfil their consumer duty obligations, they need to work harder to ensure customers actually read what is being sent to them, which means finding the right channel for customers that is simple to access, fully compliant with regulations and above all works for the customer.
Available technology combined with hyperlinks can provide a click-and-confirm approach much more likely to engage the customer.
Distributed ledger technology, for instance, provides the durable medium, and the immutable hyperlinks provide an immediately accessible route to documents, which can be delivered to the customer by email, messaging or text.
