We are on the cusp of a new era in the evolution of the financial services industry.
New technology, data analytics and behavioural economics are promising to revolutionise the customer experience.
If the regulators remove the regulatory barriers, then using multi-media to deliver mandated and voluntary disclosure in different formats and through different devices will increasingly be features of the new landscape.
However, we are still talking about disclosure – albeit better quality and targeted disclosure that is delivered in a more digestible way.
Disclosure alone may not be sufficient to protect customers from their poor purchasing decisions, particularly in the direct digital world.
This is the primary driver behind the conduct regulators’ push for suitability obligations on product providers and early intervention and banning powers and higher fines for non-compliance with these obligations.
If you want to minimise the risk of being on the receiving end of these regulatory sticks, you need to build suitable products and use appropriate distribution channels.
The industry is proactively using customer surveys, enquiry and complaints analysis, switching, lapsing and other transactional data to understand customer needs to build suitable products.
In order to build suitable products, you may also need to revisit the effectiveness of your internal product development standards, financial modelling and stress-testing processes. Do they include intended customer identification and assessment of genuine needs and target markets in order to reduce the risk of mis-selling?
Product distribution continues to be the focus of the regulators when consumers suffer financial loss. How effective are your disclosure standards, and do they ensure appropriate distribution to the target market?
By definition, mis-selling occurs at the point of sale. New technology should facilitate the development of more effective self-education and self-assessment tools to better ensure that both consumers and their advisers are equipped to understand the suitability of products to meet their needs. Do your “point of sale” processes audit the use of those self-education and self-assessment tools and test the suitability of products recommended to customers using those tools?
Of course, the new customer engagement strategies go beyond the point of sale to seek to build a longer term relationship with customers.
Voluntary disclosure after a customer acquires a product can be used to ensure they understand how the product works and performs in different conditions in order to better manage their expectations.
These ongoing relationship touch-points also allow the product provider to “suggestive-market” other products and services to the customer in a “regulation light” way; that is, without having to comply with the mandated disclosures linked to the provision of financial product advice.
In this ever-changing landscape, the challenge is to try to understand the direction of innovation and to proactively identify the legal pathways to facilitate that change, or the regulatory barriers that need to be removed to do so. The comforting thing is that the regulators are willing to facilitate that change.
However, the onus remains on the industry to build suitable products, choose appropriate distribution channels, and arm customers and their advisers with appropriate tools to enable them to make better purchasing decisions.
This blog is part of the Innovation and Disruption Series by Norton Rose Fulbright. You can register here to receive these blogs by email.