How can the industry better educate customers
Society has moved forward leaps and bounds in its approach to mental wellbeing.
Today, most people are supportive of those with mental health challenges and open about seeking help.
We may not have completely cracked it, but the quality of conversation and support has improved markedly since the turn of the century. Sadly, the same cannot be said for financial wellbeing.
A survey of 1,500 respondents by PA Consulting found that almost half (46 per cent) feel more financially stressed than at any other time in their life, and a similar number (45 per cent) are expecting their financial situation to get worse.
A clear majority do not feel empowered or protected when it comes to their finances, nor do they trust institutions to provide much-needed support.
Financial services firms – or the astute ones, at least – are taking note.
The cost of living crisis, which has put many households under more financial strain than since the 1980s, coincides with the biggest regulatory shake-up in a decade.
The Financial Conduct Authority's consumer duty has radically changed how firms protect customers and will be essential to ensure good outcomes are delivered for the vulnerable.
We are fast approaching the six-month mark since the duty came into force. Organisations that understand the correlation between good conduct, doing right by customers, and future business resilience are already working to change this.
Those that plan to wait longer to properly tackle their closed books and embed the duty are in for a nasty surprise.
Simply "box-ticking" or trying to rush through surface-level changes in products, processes and advice will not be enough to meet the requirements of the July 2024 deadline and boards’ first considerations of the consumer duty annual report.
The duty raises the bar for banks and other financial service providers, calling on them to put customers front and centre.
The FCA means business, and compliance with the duty is not just a "nice to have", but a commercial imperative. The industry has little choice but to use this to re-consider its entire approach to customer-centricity and financial wellbeing.
Breaking the stigma
What does this mean in practice? Financial service providers must put themselves in their customers’ shoes and truly attempt to understand their financial weak spots, difficulties, and concerns.
Just as recognising mental health problems is the first step in tackling them, dealing with poor financial health starts with acknowledging the huge financial literacy gap.
More than half of people in our survey say there is too much technical information to keep track of, 48 per cent find there are too many financial terms they do not understand and 35 per cent do not know where to find reliable financial updates.
I saw this first-hand as the UK’s chief financial ombudsman. Much of our time was spent trying to help consumers feel comfortable in engaging with financial products at an early stage and overcoming low levels of understanding.
Businesses would do well to remember that most people only get involved in financial products and services for a major life event, such as buying a house or car, and therefore may feel overwhelmed by the small print or lack familiarity with financial terms.
Finance is complicated, yet there is a stigma around admitting this or opening up about financial difficulties. "It's OK to not be OK" should apply not just to our mental health but also our finances, without people fearing being penalised by banks or other service providers.
Better support systems
The industry has a duty to put support systems in place to ensure customers do not suffer in silence.
Our survey respondents were unequivocal that they want banks and financial institutions to do more to educate them and help them avoid making costly mistakes.
Almost 80 per cent want providers to take responsibility for providing unbiased and accurate guidance to help them manage their money, and a similar number want help to learn about inflation, budgeting and investing.
Simple-to-provide video tutorials, factsheets, workshops or training courses on topics ranging from saving to retirement planning would be welcomed by many.
These approaches can also be supported by artificial intelligence – but there is a trust gap to overcome first.
Less than a quarter of respondents would be happy for AI to give them personalised financial advice, and institutions will therefore need to be transparent about how AI is used.
As has happened with mental wellbeing, let us recognise the value of open, honest conversation about financial wellbeing.
The cost of living crisis has caused serious hardship, with many reluctant to talk about the problems they are facing. The consumer duty must serve as a catalyst to change this.
Now is the time to start enacting changes and looking at how the industry can pre-empt people getting into difficulties.
This involves giving customers the right information, the chance to ask questions, and support early on, rather than only stepping in when they reach a crisis point.