Consumer Duty – Let Customer Expectations Be Your Guide

By Emily Berridge

The FCA’s new Consumer Duty (CD) regulation represents a fundamental shift in the ways financial institutions relate to their retail customers. Under the changes, firms in retail financial markets, and their suppliers, have to:

• ensure consumers are only sold products or services that are appropriate for them
• ensure consumers are offered quality products and services at a fair price
• ensure all consumer communications are accessible and easy for consumers to understand
• ensure consumers receive effective support
• monitor and regularly review customer outcomes and take action to address any risks and improve results

These highlight the need for financial services (FS) firms to understand their customers better, raise standards of care, protect customers from foreseeable harm (especially the most vulnerable groups) and restore consumer trust in the sector.

Financial institutions will be obliged to provide evidence showing how they are implementing the new CD requirements. The FCA’s guidance clearly indicates the expectations they have of firms. It also highlights questions they will ask to determine the extent of compliance and the improvements in customer outcomes they are seeking.

Whilst FS firms use many tools to analyse customer feedback data, the question is how well these:

• provide meaningful insight
• help identify problems and areas of risk
• inform action that will improve customer outcomes
• positively impact loyalty and trust

The FCA has clear EXPECTATIONS of firms and so do customers. But do FS firms understand what their customers’ expectations are? Being aware of a customer’s needs is one thing, but that’s not enough. A young couple buying a home almost certainly NEED a mortgage, but what are their expectations of the firm that provides that mortgage? If that is unknown, then the potential for negative customer outcomes rises sharply. Needs are not the same as expectations.

Understanding customer expectations is not a nice-to-have; it’s essential. This level of insight will accelerate and add depth to any CD compliance planning and implementation. The trust, loyalty and advocacy that Financial Services firms seek are all outcomes of them meeting customers’ expectations. These are not only desirable outcomes from a business perspective, but also precisely what the FCA is trying to achieve.

Asking your customers what their expectations are is the best way to “put consumers at the heart of your business and deliver good outcomes for your customers”’ because it focuses on your customers and what matters most to them. And yet very few retail FS firms do it.

Having this insight is essential in helping your customers “achieve their financial objectives” and ensuring you “do no harm” in your dealings with them

Using this approach facilitates continuous learning, keeping you abreast of changes to your customers’ expectations as they are impacted by external events. The cost-of-living crisis is a good example. Whilst customer needs may not have changed much, their expectations certainly have – the COVID pandemic demonstrated this clearly.

This is also an excellent way to provide evidence required by the review and monitoring elements of the CD.

The Consumer Duty will require a significant investment in time and effort for the retail FS industry. Understanding customer expectations will not only help firms on their journey towards compliance but also build stronger customer relationships – and that’s always good for business.