Last week, the Financial Conduct Authority (FCA) released its Occasional Paper 23 entitled ‘Full disclosure: a round-up of FCA experimental research into giving information’.
What is the purpose of the paper?
The FCA has been ‘at the forefront of using behavioural science and experiments to inform regulation’.
This new round-up paper presents eight experiments, comprising five field trials and three online experiments. They are designed to ‘test the effect of interventions that draw on behavioural theory, such as increasing salience or personalisation’.
The questions covered by the research include:
- How can we design disclosure about annuities to help people get a better deal?
- How can firms improve customers’ engagement with their mortgages
- What messages encourage customers to claim compensation?
- How can compliance and engagement amongst regulated firms be improved using communications?
We thought it would be useful to summarise the results. The findings are interesting to anyone involved in customer communications.
How were the experiments carried out?
The experiments into communications and disclosure looked at consumers as well as regulated firms. They covered topics ranging from choosing a payday loan to improving compliance with regulations.
They were carried out as ‘Randomly Controlled Trials’, where one group is treated ‘as normal’ – the control group – and others are subject to various ‘treatments’ (alternate approaches), with their reactions to these treatments noted.
What does the research tell us about customer communications?
The full research results are quite meaty – you can download them from the FCA website if you want to read them in detail. Here, we’ve summarised the points we think are most interesting and relevant.
Communications between the regulator and the firms it regulates
Two of the experiments looked at how the FCA can improve engagement with the firms it governs, and how it can help them understand and follow the rules.
- Mutual societies’ returns
The first experiment looked at how better communications could help mutual societies send in their returns to the FCA on time.
Formatting key messages as bullet points, and including risk warnings about potential penalties on envelopes did not affect societies’ ability to get returns in on time. But timing did affect compliance, with those that received reminder letters closer to the returns deadline more likely to respond.
The default deadline for return submission is 31 July, although societies are able to move away from this if they want. The research showed that those that stuck with the mandated deadline were more likely to submit on time.
- Helping firms apply for authorisation
Another experiment aimed to increase engagement with FCA emails among firms applying for authorisation. Specifically, this focused on firms coming under its remit when it took over regulation for consumer credit from the Office of Fair Trading (OFT).
The regulator sends out a raft of emails to firms applying for regulation, to help them with the process – but many go unopened. In the experiment, different email subject lines were used to identify the approaches that work best.
An email with the heading ‘Your FCA application: help is here to complete your application’ achieved the highest open rate, along with a similar one saying ‘[Firm name], help is here to complete your application.
The report concludes that the personalisation, plus the mention of the regulator’s name, made the successful emails more pertinent and authoritative than the less successful subject lines.
- Writing engaging letters
The first consumer experiment focused on how to encourage customers to pay back interest-only mortgages. Regulatory research had shown that a large number of people with mortgages due to mature hadn’t established any vehicle for paying them off.
Letters varied by:
- Removing the standard risk warning ‘Your home may be repossessed if you do not keep up repayments…’
- Removing a table of personal data showing the balance and time left on the mortgage
- Using bullet points to summarise key information at the top of the letter
- Rewriting the letter in a friendlier, less formal tone
Although response rates overall were low, rates were improved by making the letter more informal, with no standard risk warning. Contrary to what you might expect, using bullet points decreased response rates.
The report says that the results show that ‘less is more in this context and simplicity is likely to improve response rates’.
A second experiment, focusing on letters sent to customers whose money had been retained by cash machines, showed similar results.
Bullets did not make readers more likely to claim redress – although interestingly, a more informal letter, with bullet points, did have a higher response rate, as recipients contacted the bank to ensure it was genuine and not a ‘phishing’ scam. Another thing to consider if you’re thinking of moving to a more informal approach in your communications.
- Using personalisation
The report looked at whether personalisation would encourage customers to vote on a scheme to review the sale of insurance products.
A firm contacting its customers about redress wanted them to have a say on the firm’s proposed review into the way its products were sold. The experiment aimed to identify whether handwritten envelopes would increase engagement with the letters.
Although hampered by a necessarily small treatment group, the experiment didn’t show any increase in response rates from the handwritten envelopes.
- Looking at consumer understanding and choices
The last three experiments took place under ‘lab conditions’, where people took part knowingly.
They examined consumer choices around retirement annuities; looked at how the presentation of information on price comparison sites affects choices; and explored whether and which information encourages customers to shop around for an annuity.
Retirement savings and income is a problematic area for providers, and a challenging one when it comes to consumer choices. Typically, throughout their pension saving journey, consumers are presented with their pension as a ‘lump sum’ and their potential annuity as an annual income. This has been shown to lead to an aversion to annuities; the report shows that sending consumers all the relevant information and framing it correctly is essential.
The term ‘annuity’ seems to have negative connotations among consumers; removing it actually resulted in a higher number of people choosing an annuity.
The comparisons on loans showed consumers were most likely to pick the cheapest loan consistent with their preferences if:
- All the loan offers compared were shown on a single page
- The total cost of the loan was clearly shown, instead of the representative APR
- The loans were shown in order of cost
The ‘shopping around for an annuity’ research showed that personalisation, particularly in terms of showing a personalised annual income, and a clear, visual call to action made a difference when it came to encouraging consumers to shop around for an annuity.
Reap the rewards from small changes
These experiments show that some fairly easy-to-achieve tweaks can deliver big improvements in terms of consumer outcomes.
Any firm wanting to ensure their communications are engaging their customers, and having the desired impact, would benefit from reading the research in full.
If you need your communications to meet the Financial Conduct Authority’s requirements, our Financial Promotion Review service can help.
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