Marc Michaels, Director of Behaviour and Planning, The GIG at DST
Understanding Customers Beyond the Numbers
The financial services industry has been told in no uncertain terms[1] to get to know their customers as people. The idea is to better understand whether the financial products on offer are actually appropriate for them.
For many institutions that are used to dealing with their end customers through IFAs and platforms, this is indeed a wakeup call and one that can’t be ignored.
But in a world where financial jargon is the ‘lingua franca’ of everyday chatter around the water cooler rule the day, do companies truly appreciate the lack of knowledge that their customers have when it comes to financial matters?
The Reading Age Challenge in Finance
It may surprise you to know that the average reading age of the UK population is that of a nine year old. But more importantly, even if people have a higher reading age – they still prefer to read things that are at that level or two years below.
However, many organisations continue to look at the materials supporting financial products from an operational standpoint. To underscore the importance of bringing marketing principles into the operational arena, and better understanding the psychology of communication, a great deal can hang on the use of a single word.
For example, when the NHS Smoking Helpline was launched, one word was changed from the previous incumbent’s script and this reduced the hang up rate massively. Previously callers were told that they had reached a ‘Quit Counsellor’ – this word made people feel uncomfortable, sometimes enough to put the phone down. However they were much happier to speak to an ‘NHS Smoking Adviser’.
This matters because millions of disenfranchised customers will lack access or choose not to use financial advisers, possibly ‘doing it themselves’, doing it through other trusted parties like banks or supermarkets (but possibly with the wrong product set for them) or not at all through fear.
Meanwhile fund providers will be bringing in D2C communications and will need to make real efforts to ensure communications are truly received and understood by the recipient – not just sent – as this is even more pronounced with the vocabulary of finance.
Behavioural Biases in Financial Decision-Making
But surely people are making mostly rational decisions when it comes to finance?
Actually, we are all subject to the same idiosyncrasies and behavioural biases when we are selecting financial products that operate in other sectors, such as loss aversion, mimicking/social proof, framing, anchoring, status quo bias, reciprocation etc., and the FCA know and recognise this too.[2]
Nonetheless, whilst all recognise that, according to cognitive psychologists we are engaged in system 1 -autonomic thinking – 90 per cent of the time,[3] unfortunately most financial copy seems to be written for the very alien rational Spock, rather than the very simple human Homer Simpson.
Communicating Effectively to Build Trust
Excellent market practice ensures that communications are simple and to the point and combines skilful use of imagery and words to achieve this. It is also therefore essential that the voice of the customer is brought into the boardroom and fully understood, so organisations can deliver this clarity.
After so many scandals, consumers have a great deal of mistrust of financial institutions. Complex language and obscure phraseology merely reinforces that the institution is perhaps trying to confuse deliberately, hiding something in the small print, not being up-front. How can we expect customers to trust a firm, if that firm doesn’t speak in a language they can fully understand?
Mark Carney noted in 2013 that clarity is one of five key areas that financial institutions need to work hard in to regain consumer trust.[4]
Research Insights: How Language Affects Understanding
To understand what clarity really means in practice, we at The GIG at DST undertook research[5] with nine-14 year olds to demonstrate to the investment industry that their communication is simply not understood by the average person in the UK. Specific aims of the research were to:
- Understand how much of the content is actually understood by children and parents
- Understand which terms and phrases are not universally understood or misunderstood – identifying the ‘worst offenders’
Possibly the scariest things in the findings is that whilst none of the children had heard of any of the products we brought up before, they valiantly attempted to guess what they could involve. Worryingly even when people haven’t a clue, quite often they will volunteer a definition and in most cases it is wrong. In the finance sector this can be disastrous.
Whether to invest is completely bound up with risk, and peoples’ understanding of it does relate to the amount of risk they are prepared to take. This relates to the amount they have already and the ‘endowment effect’ (Thaler)[6] or ‘loss aversion’ as it has become known.
For example, for the children in our research, the potential gains were not worth the potential risk we outlined. We suggested a potential net gain of £2.50 on a £10 investment after a fee of 50p. When we explained that even if we lost them £1 (i.e. only returned £9 of their original investment), we would still charge them 50p. This would give them an overall potential loss of £1.50 and as a result most were not interested. The net potential gain needed to be closer to £3 if not £4, for the children to take the risk. As with most of us, loss weighs more heavily than gain by a factor of 2 to 2.5.
The summary conclusion of the research is that language used in the financial sector is fairly meaningless to people outside the sector, and often raise more questions. Worse still the fear and uncertainly of not knowing whether you are making a good decision can cause people to opt out, as often not making a decision is the safest thing to do.
And for the finance industry that is required to ensure its house is in order after a series of embarrassing and costly errors, this represents a large flashing neon red sign.
Steps to Enhance Clarity and Compliance
There are no simple fixes, but considering the points below should improve your approach and demonstrate that your organisation is taking serious steps to look at things from the customer’s point of view.
- Ensure that you recognise that the skills of marketing and excellent communications are required throughout your customer journey, not just at acquisition stage.
- Through combining data, research and human psychology, understand the customers you are targeting and the segments you have in terms of their life-stages, attitudes to risk and ability to deal with financial language.
- Listen to the feedback you get from customers. Watch out for where people struggle, where they abandon the journey. What are the pinch points where people feel insecure or confused?
- Make it more human and real and relate it to what people care about and how they think.
- Ensure you are testing the materials and content you create in terms of their ease of understanding. Test through research and direct/digital marketing best practice with a view to continuous improvement
- Keep in mind some simple ‘rules’:
- Write for a nine year old
- No more than eight words in a headline
- Five-eight words (max 10) in a sentence – avoid complicated sub clauses
- Three-seven sentences per paragraph and varied
- No large daunting blocks of text – employ chunking[7] techniques
- Active not passive
- Plain English
- Read the copy aloud – if you stumble over something, your audience will too
- Try to accommodate ‘half-hearted attention’
- Consider that you have to project this clarity of communication in whatever touch-points the customer wants to connect – every connection counts
[1] The FCA expect firms to assess customer’s needs carefully and explain that ‘assessing your customer’s needs involves gathering and recording all relevant factual information together with their aims, financial aspirations and views on the degree of risk they are prepared to accept when it comes to investing to achieve these.’ See http://www.fca.org.uk/firms/firm-types/financial-adviser/customer-needs
[2]Applying behavioural economics at the Financial Conduct Authority, Occasional Paper, 2013.
[3] A definition of the ‘Systems 1’ and ‘Systems 2’ brains can be found in Daniel Kahneman’s book, op. cit. ‘System 1 operates automatically and quickly, with little or no [conscious] effort and no sense of voluntary control. Systems 2 allocates attention to the effortful mental activities that demand it, including complex computations … [and] are often associated with the subjective experience of agency, choice and concentration’.
[4]Rebuilding trust in global banking London, Ontario, 25 February 2013
[5] We conducted 8×20 minute filmed in-depth interviews with children aged 9-14, accompanied by a parent/guardian. Fieldwork took place on the 27th of March 2014 in South West London
[6]Nudge: Improving Decisions about Health, Wealth, and Happiness, Richard H. Thaler and Cass R. Sunstein, Yale University Press, New Haven, 2008.
