The FCA’s ‘Package to boost UK investment culture’ makes a decisive shift away from prescriptive and complex templates that consumers don’t find useful, giving firms more freedom to put the consumer first, innovate and help their customers understand potential returns as well as costs and risks.
Understanding has never mattered so much, and we have better tools available for it than ever before. But what happens if you ignore or deprioritise understanding in a world where people thirst for it?
As an adviser, you have an obligation both to understand your client and to ensure that they understand the advice you give and the products and services you provide or take responsibility for.
To achieve that, you have a range of media available to use:
- Your voice and body language in a real-time meeting, face to face or over video.
- Static ‘sales’ or advice aids and personalised illustrations or reports.
- Software screens, with or without you present.
- Providers’ material.
- Independent references and sources – for example, HMRC, the Bank of England or even the FCA.
This has been the case for some time, with only the digital media coming later – a mere 30 years ago!
Including preset phrases that purport to represent an individual’s personal consciousness is an assault on the sovereignty of their mind
In general, the honed interpersonal skills, empathy and hard-won trust of the adviser were the most effective method of gaining and ensuring understanding. Your superpower, if you will.
So, what has changed?
- The Consumer Duty has codified the obligation for the understanding outcome. This means that it’s everyone’s responsibility, so providers are improving in this area.
- Technology means it’s practical to provide interactive and more various non real-time communications where the adviser isn’t present.
- Video meetings, phone voice recorders and smart speakers, coupled with transcription technology, mean the client has – or has the ability to have – their own recording and transcript of any meeting.
- The UK has been increasingly moving from ‘caveat emptor‘ to ‘caveat venditor‘, culminating in the Consumer Rights Act 2015 and the Consumer Duty in 2022.
- We have an increased availability, capability and awareness of behavioural psychology, perhaps brought into popular consciousness by books like Richard Thaler’s Nudge and Daniel Kahneman’s Thinking Fast and Slow, as well as by the Cameron government’s Nudge Unit.
- The provider information that an adviser needed to explain is being improved, not only as a result of the Consumer Duty but due to specific changes to factsheets and KIIDs through CP24/30 (a new product information framework for Consumer Composite Investments), with yesterday’s PS25/20 Supporting informed decision making: Final rules for Consumer Composite Investments.
- The Advice Guidance Boundary Review and targeted support should mean an authorised firm can deliver targeted and more personal ‘suggestions’ or ‘interventions’ under COBS 9b, with an explicit understanding requirement and testing but without the baggage of legacy approaches to suitability wording.
- The FCA’s Sarah Pritchard has given a consistent message this year that firms should stop hiding behind boilerplate “capital at risk” type warnings and outdated customs, and instead use the FCA’s flexible, outcomes focused rules to give clear, simple, prominent risk explanations that genuinely help consumers make informed decisions. More to come on this next year, I suspect.
- Finally, there are natural language models in almost every consumer’s hand or on their desk.
So, what are the consequences for advisers and advice firms?
Firstly, mandating a templated word document to produce a single, long, impersonal, jargon-heavy letter for Suitability Disclosure will no longer provide the regulatory compliance nor complaints defence for which the practice was no doubt intended.
FCA sets out landmark package to boost UK investment culture
Hoping that document will cover anything the adviser may have forgotten to say, or correct anything they should have said differently in a caveat emptor style, is unlikely to cut it in this new environment – and undermines, rather than ensures, client understanding.
Including preset phrases that purport to represent an individual’s personal consciousness while in fact being applied to all clients is an assault on the sovereignty of their mind.
Mandated statements such as ‘your objective was x’, ‘you said y’ and ‘you understand z’ imply either that a) every single client does think that way, b) the adviser must coerce the client into actually saying those things or c) the letter is a false record.
Remember, clients now have their own recordings and transcripts – and, behaviourally, few advisers, let alone paraplanners, would choose to override the set wording.
The good news is that this technology and psychology is scalable and available to all
Secondly, if your documentation is not understandable, the client could simply upload it into their chosen AI and ask them to explain it. That isn’t something you want to happen. What if the output is different from what the adviser said or meant – and, if that’s the case, who does the client trust as their adviser?
Thirdly, as provider communications and targeted support improve at pace with behavioural psychology, technology and constant testing, adviser communication needs to keep pace, or you could easily find it’s no longer the most understandable and engaging.
The good news is that this technology and psychology is scalable and available to all – and the necessary understanding audits, delivery mechanisms and testing are affordable for everyone.
As the world changes, even superheroes need the best weapons.
Chris Jones is financial services director at Dynamic Planner
