Product communications

General

Consumers can only be expected to take responsibility (and therefore pursue their financial objectives[1]) where firms’ communications enable them to understand their products and services, their features and risks, and the implications of any decisions they must make.[2]

Product communication (as captured within the consumer understanding outcome) is about giving customers the information they need, at the right time, and presented in a way they can understand.[3]  The requirements of the consumer understanding outcomes apply to:

1. all FIRMS involved in the production, approval or distribution of retail customer communications (regardless of whether the firm has a direct relationship with a retail customer),
2. all INTERACTIONS with retail customers, including those that occur before, during, and after any sale of a product, and whether or not related to a specific product, and
3. all FORMS OF COMMUNICATION from a firm to a retail customer, regardless of the channel used or intended to be used for the communication (including verbal, visual, in writing, online and in product terms and conditions).[4]

Requirements when designing product communications

In order to comply with the consumer understanding outcome, firms should act in good faith and avoid designing or delivering communications in a way that exploits consumers’ information asymmetries and behavioural biases.[5]  At a more granular level, firms are required to:

1. support their customers’ understanding by ensuring that their communications meet the information needs of customers, are likely to be understood by customers intended to receive the communication, and equip them to make decisions that are effective, timely and properly informed,
2. tailor communications taking into account the characteristics of the customers intended to receive the communication,
3. when interacting directly with a customer on a one-to-one basis, where appropriate, tailor communications to meet the information needs of the customer, and ask them if they understand the information and have any further questions, and
4. test, monitor and adapt communications to support understanding and good outcomes for customers.[6]

In practical terms, firms should:

1. explain or present information in a logical manner,
2. use plain and intelligible language and, where use of jargon or technical terms is unavoidable, explain the meaning of any jargon or technical terms as simply as possible,
3. make key information prominent and easy to identify, including by means of headings and layout, display and font attributes of text, and by use of design devices such as tables, bullet points, graphs, graphics, audio-visuals and interactive media,
4. avoid unnecessary disclaimers, and
5. provide relevant information with an appropriate level of detail, to avoid providing too much information such that it may prevent retail customers from making effective decisions.[7]

At the very least, in order to help consumers makes effective decisions, communications must explain:

1. any actions required by customers and any consequences of inaction,
2. the key features, benefits, costs and risks of a product or service where customers need to evaluate or make a choice about the product or service, and
3. how customers can access any additional information or support they might need.[8]

As with the entire Consumer Duty, obligations with respect to the consumer understanding outcome are based on what is “reasonable”.  This will depend on a number of factors, including the nature of the product, the characteristics of the customers and the role of the firm.

A good rule of thumb firms can follow is to ask whether they are applying the same standards to ensure their communications are delivering good consumer outcomes as they do to ensure their communications help to generate sales and revenue.[9]  For example, communications advising customers on how to switch or complain should be at least as clear as those used to sell the product.[10]

Timely provision of information

In the context of the consumer understanding outcome, “timely” provision of information means that information should be provided both before the purchase of a product and at suitable points throughout the lifecycle of the product.[11]

If a product changes, firms should consider communicating with clients so as to ensure that the product or service continues to meet their needs and objectives. For example, firms should consider sending out a prompt before the end of an introductory offer period.[12]  This is particularly important for longer-term contracts where there is greater scope for circumstances to change.

If a firm’s monitoring activity identifies that customers are frequently asking the same questions or there are issues commonly causing confusion, it may be appropriate to proactively communicate more broadly with its customers to clarify the issues.[13]

In some cases, this may mean that firms need to communicate more often than they currently do. However, at the same, time firms should also consider the effect of communicating too frequently, and possibly diminishing the impact of important communications on which action is required.[14]

Tailoring communications in order to assist consumer understanding

When designing a product or service, firms are required to define a target market. When communicating about the product, firms should consider the characteristics of the consumers within its target market and tailor communications to meet their information needs.[15]

Firms should consider whether they can segment or target communications to make them more relevant to the intended recipients, rather than adopting a ‘one size fits all’ approach.[16]

However, firms are not expected to tailor all communications to meet the individual needs of each customer.  Instead, they should take into account the characteristics of customers more broadly.  This means that firms should consider what they know about their customer base and the target market for their products and services.[17] Factors to be considered include:

1. the characteristics of retail customers, including any characteristics of vulnerability,[18]
2. the complexity of the product,
3. the communication channel(s) used, and
4. the role of the firm, including whether the firm is providing regulated advice or information only.[19]

Nonetheless, the Consumer Duty rules do require firms to tailor communications when dealing with customers on a one‑to‑one basis where it is appropriate to do so (such as in branch, during a telephone conversation or other interactive dialogue).  If it becomes apparent to a firm in conversation with an individual customer that the customer requires particular information or has a specific characteristic of vulnerability that the firm needs to respond to[20] the firm should:

1. tailor the communication to meet the information needs of that retail customer,
2. ask the retail customer whether they understand the information, and
3. ask if they have any further questions (particularly if the information is reasonably regarded as key information, such as where it prompts that retail customer to make a decision).[21]

Communicating complex information

Where firms must communicate complex information in order to comply with other disclosure requirements, they should consider what additional steps they can take to support consumer understanding.  For example, a layered approach can be helpful in providing context or explaining key information upfront in a simple way – such as in a cover letter, signposting more detailed information that consumers may want to consider or may be helpful for reference at a later date.[22]

Vulnerability in the context of the consumer understanding outcome

Research has found that one in seven adults have literacy skills at or below those expected of a 9 to 11 year‑old.  In addition, the FCA’s Financial Lives Survey found 17.7 million adults (34%) have poor or low levels of numeracy involving financial concepts.

Firms should consider characteristics associated with the drivers of vulnerability that may be present in their customer base or target market.  These might include erratic income, inadequate income, over-indebtedness or low savings.[23]  They should also have processes in place to support those within the target market who exhibit characteristics of vulnerability (for example, by having a clear way for consumers with a hearing or visual impairment to request communications in a format that meets their needs).[24]

If a firm is developing communications for a simple mass‑market product, the FCA expects it to take these characteristics into account and communicate information in as simple a way as possible to support understanding for these customers. In contrast, if a firm is communicating about a complex product with a more sophisticated target market, the FCA accepts that it may be reasonable to communicate in a different way.[25]

Product-specific versus non product-specific communications

For product-specific communications, a firm should consider the target market for that product.

For non product-specific communications, a firm should consider its retail customers generally,[26] taking into account what they know, or could reasonably be expected to know, about the sophistication, financial capabilities and vulnerability of the intended recipients of the communications.[27]

Testing product communications

The FCA expects firms to be able to demonstrate consumer understanding.  This is primarily achieved through testing of communications and their impact.

Firms who are responsible for the production (or adaptation)[28] of communications must be able to demonstrate:

1. that they have an approach to testing that delivers good outcomes,[29]
2. how they have tested consumer understanding, and
3. where appropriate, where improvements have been made to their communications.[30]

Firms which have direct interactions with retail customers, whether or not they are also responsible for the creation or adaptation of communications, must monitor the impact of those communications[31] and provide feedback to the originator of the relevant communication.[32]  An example would be firms that provide customer services (whether outsourced in whole or in part).

Testing should check communications can be understood by customers, so they can make effective decisions and act in their interests.[33]  Testing should normally be conducted before communication is made with customers.  In addition, the impact of communications should be monitored so as to assist firms in identifying whether they are supporting good outcomes for retail customers.[34]

Examples of testing

Forms testing may take include:

1. experimentation in the form of randomised controlled trials or A/B tests with real customers or online experiments,
2. surveys – asking a sample of customers for feedback and responses via a questionnaire (online or on paper),
3. interviews, or
4. focus groups.[35]

Customer communication champions

Firms may wish to train internal ‘champions’ in the principles of good customer communications. These individuals can independently review communications from a consumer angle, and help firms develop and maintain best practice.[36]

Not all communications need to be tested

It is important to note that it is NOT necessary to test ALL communications in advance of sending them.  Rather, firms should determine which communications should be tested.[37]  In determining whether testing of a communication is appropriate, a firm should consider factors such as:

1. the purpose of the communication and, in particular, if it is designed to prompt or inform a decision, and the relative importance of that decision,
2. the context of the communication, its timing, and its frequency (for example, it is likely to be more appropriate to test communications that could impact many retail customers),
3. the information needs of retail customers,
4. the characteristics of vulnerability of retail customers,
5. whether the scope for harm to retail customers is likely to be significant, including if the information being conveyed were misunderstood or overlooked by retail customers, and
6. whether, to support good outcomes for retail customers, it is more important to communicate information urgently, rather than carrying out testing beforehand.[38]

When to test communications

Testing should usually be carried out in advance of communicating the information to customers (for example, when firms are developing sales literature or telephony scripts in relation to a new product).

However, the FCA recognises that there may be times when firms need to respond to incidents at pace.  In these circumstances, they must balance considerations in relation to testing – and the associated elapsed time – with the need to intervene urgently to protect customers from harm.

In addition, it may not be possible to test certain communications, such as ad-hoc conversations during customer service calls.[39]

Communication within distribution chains

A firm must provide information in good time to another firm in the same distribution chain, where such information is:

1. requested by the other firm and is reasonably required, or
2. otherwise considered to be reasonably required by the firm, so that it can be communicated to retail customers.[40]

Communication issues identified within distribution chains

Where a firm identifies or becomes aware of a communication produced by another firm in its distribution chain that is not delivering good outcomes for retail customers, it must promptly notify the issue to the relevant firm in the distribution chain.[41]

Firms should also notify the FCA if they become aware that another firm in the distribution chain is not complying with the Consumer Duty.[42]

Remediating communication issues

Where a firm has identified any issues in its communications, it must:

1. investigate the issue,
2. correct any deficiencies through adapting its communications,
3. where appropriate, adapt its products or processes, and
4. where appropriate follow the requirements in relation to remedies and other action in PRIN 2A.2.5R and PRIN 2A.10.[43]

Data and monitoring

Firms should monitor whether their communications are supporting customer understanding and helping their customers make effective, timely and properly informed decisions.[44]

Beyond simply testing their communications, firms are also expected to consider the impact they expect communications to have, monitor whether this is the case in practice, and carry out further investigation where this is not the case, to identify and remedy any issues to support good customer outcomes.[45]

Firms should have appropriate governance processes in place to oversee this process and consider keeping a record of any relevant actions taken.[46]

Firms could use the following types of data to monitor that they are meeting expectations under the consumer understanding outcome:

1. the findings from any testing of their communications,
2. customer response rates to communications which prompt action,
3. broader analysis of whether customers are following instructions in communications,
4. analysis of responses to communications during customer journeys, including responses and drop-out rates at each stage,
5. product take-up rates,
6. product switching rates,
7. claim rates, including analysis of declined claims, and
8. relevant complaints data.[47]

Key questions for firms

Below are a set of questions which the FCA recommends firms consider in terms of managing their compliance with the consumer understanding outcome:

1. Is the firm satisfied that it is applying the same standards and testing capabilities to ensure communications are delivering good customer outcomes, as they are to ensuring they generate sales and revenue?
2. What insights is the firm using to decide how best to keep customers engaged in their customer journey, whilst also ensuring its customers have the right information at the right time to make decisions?
3. How is the firm testing the effectiveness of its communications? How is it acting on the results?
4. How does the firm adapt its communications to meet the needs of customers with characteristics of vulnerability, and how does it know these adaptions are effective?
5. How does the firm ensure that its communications are equally effective across all channels it uses? How does it test that?
6. What data, MI and feedback does the firm use in its ongoing monitoring of the impact of its communications on customer outcomes? How often is this data reviewed, and what action is taken as a result?[48]

Next time

Next time, we’ll be turning our attention to look at product support within the context of the Consumer Duty, so stay tuned!

[1] FG 22/5, 8.2

[2] FG 22/5, 8.1

[3] Policy Statement PS22/9, 8.10; Policy Statement PS22/9, 8.10; Policy Statement PS22/9, 8.1; Policy Statement PS22/9, 8.11

[4] PRIN 2A.5.1R; Policy Statement PS22/9, 8.7; FG22/5, 8.27

[5] FG 22/5, 8.10

[6] FG 22/5, 8.4

[7] PRIN 2A.5.7G (see page 128)

[8] Policy Statement PS22/9, 8.11

[9] Policy Statement PS22/9, 8.11

[10] FG 22/5, 8.7

[11] PRIN 2A.5.5R

[12] FG22/5, 8.21

[13] FG22/5, 8.22

[14] FG22/5, 8.23

[15] FG22/5, 8.30

[16] FG22/5, 8.38

[17] Policy Statement PS22/9, 8.10

[18] FG22/5, 8.32

[19] PRIN 2A.5.8R

[20] Policy Statement PS22/9, 8.10

[21] PRIN 2A.5.9R

[22] Policy Statement PS22/9, 8.7

[23] Policy Statement PS22/9, 8.10

[24] Policy Statement PS22/9, 8.10

[25] Policy Statement PS22/9, 8.10

[26] PRIN 2A.5.4R

[27] FG22/5, 8.31

[28] PRIN 2A.5.11G

[29] FG22/5, 8.44

[30] Policy Statement PS22/9, 8.11

[31] PRIN 2A.5.11G

[32] FG22/5, 8.53

[33] FG22/5, 8.40

[34] PRIN 2A.5.10R(1)

[35] FG22/5, 8.57

[36] FG22/5, 8.56

[37] Policy Statement PS22/9, 8.12

[38] PRIN 2A.5.12G

[39] FG22/5, 8.43

[40] PRIN 2A.5.15R

[41] PRIN 2A.5.14R

[42] FG22/5, 8.66; PRIN 2A.9.17R

[43] PRIN 2A.5.10R(2)

[44] FG22/5, 8.59

[45] FG22/5, 8.60

[46] FG22/5, 8.68

[47] FG22/5, 8.69

[48] FG22/5, 8.70