A research response to the FCA Consumer Duty vulnerable customer update

Another month, another update from the FCA Consumer Duty, and with each update we can build a more concrete idea of best practices.

The most recent update from the FCA focused on vulnerable customers to set out examples of good practices and areas for improvement. They found that most firms have been unable to effectively monitor and take action on outcomes for customers in vulnerable circumstances. The issues the FCA cite originate in a series of five data gaps, which you can use research to help close.

1. Firms can’t identify vulnerable customers reliably
2. They don’t understand what good outcomes might look like for this segment of customers
3. Because of this many firms haven’t measured outcomes across a significant enough sample of vulnerable customers and
4. They are unaware of what barriers prevent vulnerable customers from accessing appropriate support
5. Finally, the use of proxies such as customer experience or NPS metrics instead of real outcomes has been highlighted as a particular issue: for example, a vulnerable customer might respond differently to a NPS question than a non-vulnerable customer, making it a less useful tool.

It's not all doom and gloom. The FCA have said there are a small number of firms that are effectively monitoring the outcomes of vulnerable customers. These firms’ best practices include offering flexibility in tailored consumer support, and incorporating vulnerable consumers’ experiences into product and service development processes. And from an implementation point of view there’s good news too: the FCA emphasises they don’t want to add more rules or change their guidance, just to help firms implement the current rules better.

Great work if you’re one of the small set that are effectively monitoring those outcomes, but for the rest, what does this guidance mean for your customer research?

One of the key challenges firms have in addressing the five data gaps is that research is not framed or reported in a way that guides the actions firms should take. Behavioural science offers some robust and practical tools to put insights into practice, changing the behaviour of your customers and even your employees to bring measurably better outcomes. This includes developing good defaults, providing well-structured information that is intuitively understandable, and building a choice process that reflects the ways a responsible decision-maker would make good financial choices.

According to FCA research a major factor for vulnerable customers in getting better outcomes is ‘the ability to tell their story’. The best way to help people do this is using a narrative approach with vulnerable customers.

This narrative approach involves creating an open space where customers feel safe, free and empowered to tell real stories of vulnerability. There are a range of research techniques that can create a space like this – for example moderators can tell stories about their own lives to show empathy and create permission for respondentsto share in return.

Other techniques firms can use to close those gaps are:

1. Creating appropriate screening tools to know who their vulnerable customers are and how to spot them within the customer journey
2. Using qualitative research and analysis to understand what good outcomes look like, for both vulnerable and non-vulnerable customers
3. Developing an outcome measurement tool and survey a sufficient sample of vulnerable and non-vulnerable customers
4. Using qualitative interviews or a simulated customer journey to analyse the barriers vulnerable customers face in getting support
5. Adding outcomes to trackers or build a new outcome tracker that allows you to learn the relationship between experience and outcomes, and measure outcomes directly. Irrational Agency is implementing outcome tracking for key sub-sectors in financial services, including insurance, banking, investment and credit. This will provide industry-level benchmarks and robust evidence of real customer outcomes that you can build into your board reporting.

Understanding good outcomes and implementing best practice of vulnerable customers is a key pillar of the FCA Consumer Duty, so it’s no surprise that the regulatory body are focusing on this area from the outset of their ongoing review process. As long as firms continue to have difficulty in identifying and monitoring those outcomes we can expect pressure from the FCA on a regular basis. If you want to discuss the challenge and the best practice insight solutions in more detail, get in touch with Leigh Caldwell at leigh@irrationalagency.com for a chat.