Last month, the FCA published a discussion paper on smarter consumer communications, complete with an interactive page on its website and several examples of what it considers to be best practice.
The paper states, quite reasonably, that information can “overwhelm, confuse, distract or even deter people from making effective choices”, using behavioural economics to explain why consumers can make poor financial decisions. It is wide-ranging and states its aim is to help firms move away from “the paper-based mind-set” and towards more innovative techniques.
It has long been recognised by advisers that presenting clients with a mountain of paperwork can be off-putting, costly and inimical to consumer engagement. From Key Investment Information Documents to suitability reports that aim to produce an accurate record of the conversation, as well as minimise the possibility of any future claims, there is a dizzyingly large amount of documentation awaiting clients.
But while the paper places the onus squarely on firms to use new technology to better communicate with consumers, it does not tackle what is perhaps the root of the problem: the excessive burden of regulatory requirements, systems and approaches at both the UK and EU level.
The regulator is keen to stress that suitability reports, for instance, need not be cumbersome, while expressing its dismay at the fact some seen were around 90 pages long. It says suitability reports are merely required to focus on the client objectives, why a particular course of action is suitable for a given client and the possible disadvantages and risks.
Although it appears there are officials at the FCA who sincerely believe this, a lack of a “long-stop” and the perceived unfairness of decision-making at the Financial Ombudsman Service and the Financial Services Compensation Scheme cannot help but create a framework that incentivises the noting-down of every possible detail by advisers.
A related point is the sheer number of different disclosure documents required by various EU and UK regulations and handbook codes, which, on occasion, overlap and even conflict with each other. It is clear that a well-regulated sector is in the interest of consumers and advisers alike but it is arguable that the UK advice industry is not well regulated, with an opt-out for financial regulation from the Government’s Better Regulation programme.
In addition to feeding in positive examples of best practice and innovation, advisers should seek to use this discussion paper as an opportunity to spark a debate surrounding what rules should be “slashed and burned” to ease the regulatory burden.
This could also be combined with a similar approach towards the FCA’s call for input on regulatory barriers to innovation in digital and mobile solutions, which is also currently open.
It is obvious that better, smarter consumer communications that inform without overwhelming would help consumers and advisers alike. Now it has been a few months since the UK general election, hopefully it is not too optimistic to see the FCA as in listening mode and taking the first step on the path to better, smarter financial regulation.
Caroline Escott is senior policy adviser at Apfa