Consumer Support in a Consumer Duty World

If one outcome from the Consumer Duty is likely to make the single biggest difference to your clients, it’s this...

Few FCA regulations will be as warmly embraced by advisers as the ‘consumer support’ outcome of the Consumer Duty.

In theory, it should make it easier for you and your clients to contact providers, make claims, do your product or company due diligence, and switch providers.

What is meant by consumer support?

One of four outcomes within the Consumer Duty, consumer support is closely entwined with another: consumer understanding.

Whereas consumer understanding is about communicating with clients in a way that will help them make informed financial decisions, consumer support is about ensuring clients get what they pay for.

This could be by not charging customers in unexpected or unreasonable ways (such as with disproportionate exit fees), or by introducing ‘appropriate friction’ into a sales process (more on that in a moment).

By and large, the consumer support outcome will have limited impact on advice businesses, which already typically provide good standards of service to clients. Tellingly, almost all the FCA’s good or poor practice examples involve banks, claims management companies, or credit lenders.

Instead, we expect the consumer support outcome will have a bigger impact on product providers, who need to ensure their service provision, both to advisers and consumers, meets the new standards.

The value of ‘appropriate friction’

Appropriate friction refers to slowing a sale to give customers enough time to consider their options and prevent them from making poor decisions. For example, this could be by adding pages or steps to an online product application, reminding potential customers of the risks of investing.

A counter tactic you may have heard of is known as ‘sludge’ – the introduction of friction to deter customers from acting in their interests. An example of sludge is increasing the interest rate on a savings product but making it difficult to take advantage of it, perhaps by essentially hiding a radio button that needs to be selected.

You could argue that the role of a financial adviser is, at its core, one of ‘appropriate friction’ – a necessary step designed to help clients make sensible, informed decisions.

An end to unreasonable barriers

Good consumer support enables customers to get what they paid for, for example by making a claim under an insurance policy or withdrawing funds from a savings account without facing unreasonable barriers.

Depending on the circumstances, one such barrier is an exit fee. The FCA says the support firms provide should not lead to products or services costing more than customers expected up-front, which could sound the death knell for unreasonable exit fees.

The regulator acknowledged that terms and conditions can include contractual provisions relating to early termination. But it said that exit fees should be reasonable, for example by being commensurate with any costs incurred by a firm due to a customer terminating an agreement early.

Supporting vulnerable customers

Naturally, a significant chunk of the consumer support outcome relates to servicing vulnerable customers. The FCA does not prescribe which ‘channel’ firms use to support clients – telephone, email, text, written, video calls – but that firms must ensure their preferred channel or channels meet the needs of customers with characteristics of vulnerability.

For example, some clients may find it difficult to take in information provided over the phone and need written communications. Others may find written communications difficult to deal with and need extra support.

In these instances, the FCA expects firms to respond “flexibly”. It points all firms towards its guidance on the fair treatment of vulnerable customers which includes examples of how different vulnerabilities can make certain channels of support unsuitable.

Supporting vulnerable customers

One of the perennial problems in financial services can be inconsistencies in the quality of support across the value chain. Clients can experience outstanding support one day and poor service the next, from different companies, as part of the same process.

The consumer support outcome attempts to address this. Firms, the FCA says, “must not cause harm to customers due to shortcomings in the way they deal with other firms”.

A ‘poor practice’ example outlined by the FCA describes an adviser recommending a client move assets to a new investment platform but running into unreasonable delays from the existing platform. As there is no commercial benefit to the existing platform, the FCA posits, the request is not dealt with quickly or effectively.

Instead, the FCA says, firms must deal with reasonable requests from other firms “in an effective way and in good time”.

In conclusion

Broadly, then, the consumer support outcome should drive up standards of service and support across financial services and should mean happier, more content clients.