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Navigating Consumer Duty

Measuring true understanding

The July deadline for the Financial Conduct Authority’s (FCA) Consumer Duty regulations is fast-approaching and financial providers are busy setting up programmes to meet these regulatory requirements. But what should these programmes look like and how do we truly measure genuine understanding? In this new article, Associate Director, Simon Tunna, reveals all.

Simon Tunna Associate Director, Financial Services 14/04/2023
One of the main thrusts of the regulations is for consumers to understand the communications they are sent, and to be able to make informed decisions around the financial products and services they use.

Not only do financial providers need to review the quality of their communications, but are also required to demonstrate genuine consumer understanding.

This means: testing your communications, evidencing that they are reasonably understood, and ensuring your consumers can make informed decisions.

The challenge

Step back and consider what is being asked – and the challenge becomes clear.

Financial consumers represent the depth and breadth of society from children opening their first savings account, through to the financially sophisticated. This means that the capacity of the individual consumer to understand the communications they are sent varies significantly.

As much as the population is diverse, so are the financial products and services that have been developed to meet their needs, from simple current accounts to complex products (such as pensions and equity release).

The regulations require all communications that support decision-making to be considered this not only includes communications during the sales process, but also ongoing servicing. Added to this is the diversity of communications channels including verbal, email, phone, online and paper.

So how do you measure understanding?

While there is a high degree of complexity in trying to measure understanding, the standard communication model of sender and receiver still stands.

The basic tenet of this model is that when a message is sent it needs to be decoded to be understood by the person receiving the message. That decoding process may not always be perfect and can be affected by factors that might disrupt the message being sent.

So to answer the question, how do you measure a consumer’s true understanding of the communications they receive? We’ve spent a while thinking about this, and immediately recognised that we needed to find a solution that measures understanding; that could flex according to the customer, the product and the complexity of the communications.

For relatively simple communications, simply asking a customer whether they understand a message is acceptable, but as the communications get more complex, self-assessment is less reliable. What someone says they understand and what they actually understand are two different things.

What we need to measure is their comprehension of the message and the implications that message has. This means that consumers not only need to understand the message they have received but also use their knowledge and experience to understand the implications of that message, which can be variable.

The only way of doing this is to measure whether they actually understand the implications of that message.

The solution

Our approaches, both quantitative and qualitative, are designed to understand how the messages are being decoded by consumers allowing us to assess the effectiveness of individual communications of not only delivering a message but also understanding the degree to which that message is received.

If you’d like to know more about our approach to measuring consumer understanding for Consumer Duty or wide financial market issues contact  our financial services research team here or download our spec sheets to find out more about our offers.

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More from the series:

This is the latest article in our series – ‘Navigating Consumer Duty: a Savanta series’, which aims to help financial services professionals prepare for the new FCA regulations coming into effect this year. We provide guidance and advice to help your business plan, test and evidence compliance to meet the new standards.

To access more articles from the series, click the links below:

Download the Consumer Duty Communications Testing Framework by completing the below form:

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