Information from financial services providers is a key part of the communication process between clients, their advisers and providers.
However, judging by some of the findings from the Financial Conduct Authority’s (FCA) recent Financial Lives survey, there’s considerable scope for improvement when it comes to the information consumers reply upon. Upcoming regulatory changes could be exactly what’s needed.
Too many consumers don’t find financial services communications helpful
Financial Lives is the FCA’s ongoing research into UK consumers’ attitudes to money, their financial products and their experiences of engaging with financial services firms.
The latest survey found that 73% of people who had used any form of communications from financial services providers in the year to May 2022 found them to be useful. Which is, admittedly, a substantial number of people. But that leaves 4.9 million people – more than 54 Wembley stadiums-worth, or more than the entire population of Croatia, depending on your preferred metric – who found that the communications they received didn’t help at all.
Over the same period 4.3 million people received information from their provider that they couldn’t understand, wasn’t what was needed, or wasn’t timely.
This is a situation which has to change, and there’s no easy remedy – there are multiple reasons why the documentation clients receive is not ideal. Different clients will respond in different ways to the information provided.
Even firms which know their customers’ preferences very well are constrained by the requirements of regulation. No financial services firm has a free rein to communicate exactly as they would like to.
However, while occasionally frustrating, this protects consumers from the few bad actors who might attempt to hide relevant information or manipulate decisions.
New regulations suggest change for the better
The Consumer Duty places the onus on firms to provide communications that meet the needs of their customers, and which they can understand. That is why the work being done to replace the packaged retail and insurance-based investment products (PRIIPS) regime is a genuinely positive development.
The PRIIPs rules, and the key information documents (KIDs) that came with them, are a hangover from EU legislation (in the sense that they gave people a headache and made their day worse) because their target was never the UK financial services industry.
The rules came from a well-intended idea to standardise the information received by customers, across products and across different providers.
Originally the plan was that customers would receive a single page of information in a standardised format for any product they were interested in.
Unfortunately, and inevitably, it was impossible to devise a format that provided meaningful information everywhere. At best the key information documents were off-putting and at worst required some firms to provide information that was actively misleading.
The problem with implementing in the UK was the level of prescription in the rules. They gave very little room for adaptation – certain performance scenarios, for example, because of the way they had to be calculated and presented, gave very unhelpful information to clients.
The worst of these rules have already been addressed, with the FCA given powers to remove actively misleading content from the disclosure rules back in March 2022, including replacing performance scenarios with a requirement for narrative information.
A UK focus will mean more aligned regulation
Both the Treasury and the FCA have been consulting on what happens next. In July, the Treasury confirmed that the government will be entirely revoking all PRIIPs-related retail disclosure elements from legislation, on the basis that the FCA will deliver a new UK-specific retail disclosure regime.
The FCA issued a Discussion Paper in December about what that regime might look like, and we’re expecting further outputs and draft rules from that. One thing we can expect is a change to the rules for UCITS (Undertakings for Collective Investment in Transferable Securities) which are currently exempted from having to produce a PRIIPs KID in favour of a separate disclosure regime.
Given the similarities between products marketed to retail investors under both regimes, the government plans to integrate both PRIIPs and UCITS disclosure in the future retail disclosure regime.
From an industry perspective these are positive developments, as they mean that future rules will be designed for the UK market, and a matter for the FCA, rather than set by legislation.
This means it will be much easier to align it to other regulation, in particular the Consumer Duty and especially the rules around the consumer understanding outcome, which requires information to be demonstrably understandable by the target market of the firm.
One barrier to providing information that’s actually meaningful for your clients will have been removed. It’s a slow process, but we’re now moving in the right direction.
This article was written for International Adviser by James Street , Adviser Success Manager at Morningstar Wealth.
