Good Outcomes for Customers
The enigmatic concept of “good outcomes for customers” has been a hot topic, with the introduction of the Consumer Duty. But what does it really mean?
Well, brace yourself, because it’s not your typical rulebook with mundane checkboxes. The Financial Conduct Authority (FCA) has taken a bold approach, aiming for a complete transformation in the way financial products are sold, putting customers front and centre.
No more sneaky fees or bewildering terms! The new approach is all about providing real value for money to customers, making their lives easier and empowering them to make informed choices. If a customer wants to cancel or switch investments, that process should be a breeze. If a better mortgage rate is available, they should be informed. Onerous fees are a thing of the past, and terms and conditions are now crystal clear.
But that’s not all! The Consumer Duty is about empathy and compassion too. If someone faces a family bereavement and urgently needs funds, their bank should be understanding enough to waive those pesky exit fees. And imagine being in a vulnerable situation, dealing with a life insurance claim while facing serious health challenges. In such cases, providers should step up and offer genuine support to avoid any “foreseeable harm.”
The shift towards customer-centricity is monumental. Financial services, often perceived as unethical, are now on a path to redemption.
The Consumer Duty is sparking a cultural revolution, pushing companies to prioritise customers above all else. No longer will they ignore the needs of vulnerable customers, as the focus now lies on helping them navigate the complexities of financial choices.
So, what can you expect after the Consumer Duty’s grand entrance?
Five remarkable changes are on the horizon, promising a financial world that’s fairer, more transparent, and truly dedicated to its customers.
1. Clearer customer communications
The Consumer Duty aims to enhance clarity in customer communications, holding firms responsible for proving the clarity of their messages. Fairer Finance’s James Daley points out that many organizations currently fall short in this area, with terms and conditions and other letters often being unclear. With the Consumer Duty in place, firms will simplify their communications, making them shorter, more intuitive, and easily understandable for the average customer. Additionally, financial providers will likely increase their communication efforts, helping customers make informed decisions by sending timely reminders and follow-up messages.
2. Focusing on price and proving “fair value”
Under the new rules, financial firms will be required to demonstrate that their pricing represents fair value for consumers. This involves striking a balance between their commercial interests and the costs borne by customers. Though there is no simple economic model for this assessment, providers must thoroughly analyse all their products, including numerous pricing brackets for insurance, and consider the impact on different customer cohorts. This focus on price and value aims to protect vulnerable customers, promote competition, and diversify the range of solutions tailored to the needs of target markets.
3. The demise of the 0% introductory credit card
The Consumer Duty may prompt a transformation in product designs, including the potential end of 0% introductory credit cards. Currently, some business models rely on revenue generated from customers who miss payments or carry balances beyond the offer period. However, these practices clash with the principles of the Consumer Duty, which discourages income derived from poor customer outcomes. As firms strive to adhere to the new regulations, it is likely that some previously generous financial products may disappear, while fees on other products could be adjusted to ensure fair outcomes for all customers.
4. The risk of mis-selling
The introduction of the Consumer Duty is expected to significantly reduce the risk of mis-selling. Firms will now be obligated to provide evidence that their products are designed to meet specific customer needs and should only be sold to those whose requirements are met. This customer-centric approach, along with increased engagement with customers, is likely to foster innovation and the development of new financial products. Consequently, the market may witness a wave of new offerings that cater precisely to customers’ needs.
5. Hello more speedy responses – and fewer complaints.
The FCA’s goal with the Consumer Duty is to ensure consumers can purchase and interact with financial products without encountering unnecessary obstacles. For instance, firms must make cancelling a contract as easy as joining one, eliminating unreasonable barriers for customers. The new regulations will also discourage punitive penalty charges, encouraging fees that reflect the actual costs of actioning customer requests. As a result, customers can expect smoother processes and faster responses when making withdrawals, claims, or cancellations. This customer-centric focus aims to reduce complaints and improve the overall customer experience.
Are you ready?
Are you prepared to embrace the Consumer Duty and ensure your staff are fully compliant with the latest regulations? Don’t miss this opportunity to view Study Academy’s demo course on the Consumer Duty. Click the button below to view the demo with no sign up needed.
