What do investing, dating and the FCA have in common?

At a glance: An exploration of how firms can respond to the FCA's InvestSmart campaign as part of their consumer duty implementation efforts. InvestSmart is an £11m 5-year campaign launched by the FCA in October 2021 as an innovative way to counteract the hype on social media and news forums about high-risk investments that is affecting the purchase rates of consumers, particularly first time or inexperienced ones. The campaign is a mechanism to further the FCA's 2022 - 2025 strategic goal of 'enabling consumers to help themselves'.

As part of its InvestSmart campaign, the FCA recently held an event called Swipe Left, Invest Right: how dating principles can be applied to investing.

At first glance, the financial services regulator accessing a conversation on investing via a non-financial topic such as dating might seem strange. However, it is a relatable starting point, and it recognises the transferability of skillsets regardless of the online platform involved.

The results of the FCA's Censuswide survey commissioned for the InvestSmart campaign, found that people aged between 18 and 40 are more educated when it comes to building a romantic future than a financial one. Some in the financial services industry may be confused to learn this news about the next generation of their customers. However, this finding seems less surprising if it is considered alongside anecdotal evidence of topics of conversation in social gatherings which reveal that, even among close friends, people are more likely to talk about dating than money.

The intention of the FCA's InvestSmart campaign is a targeted effort to educate inexperienced or first-time investors. The Swipe Left, Invest Right event encouraged participants to tap into and use the skills that they use when learning about new romantic partners (e.g., noticing red flags, risks and tuning into their own intuition) to challenge any hype they may have been exposed to in favour of making more informed investment decisions based on their own needs and circumstances. Although, this event was targeted at people in the 18-40 age bracket, the wider campaign is targeted at any first time or inexperienced investor regardless of their adult age.

Investment firms will also be indirectly impacted by the InvestSmart campaign because they are the providers of investment services to new or inexperienced investors. Therefore, if they aren't already, firms should be following the progress of this campaign in order to understand how the Regulator is educating this demographic of client.

The InvestSmart campaign also links into the new Consumer Duty ('the Duty') requirements which are a top priority for firms and the Regulator. The campaign and the Duty both have improving customer experiences a their heart not only generally but also in relation to specific customer groups that have previously been under served by financial services firms. Through the campaign, consumers are being given the tools they need to advocate for themselves and, if the FCA's strategy plays out successfully, it could potentially mean that this demographic become mobilised as a wave of educated customer 'enforcers' of the Duty.

If we look at how the InvestSmart and Consumer Duty work together it seems that there is also an onus on authorised firms to assume more of an 'educator' role when they are explaining investment risks to inexperienced or first-time consumers to facilitate informed investment decisions. Essentially, while the FCA can try to educate consumers it has no control over the uptake rates for its efforts. Therefore, it continues to remain the responsibility of a financial services firm to 'test' consumers understanding and fill in any gaps in a consumer's knowledge with tailored information, and to understand each individual's personal suitability requirements where appropriate.

Practical steps - How can firms reflect consideration of the InvestSmart campaign into their own regulatory framework and operating models?

1. Using Consumer Duty Outcome 3 and 4 activities.

In light of the learnings from the InvestSmart initiative about the investing experience of younger investors, firms could review their customer journey mapping to identify touchpoints in the client journey where young investors might potentially face greater detriment. Firms could use this as an opportunity to design, review and tweak services and support available.

2.Accessible support pathways for young investors.

Firms can leverage the FCA’s strategic goals to help consumers help themselves e.g., by reviewing their DIY capabilities and making sure their support pathways are fit for purpose and compatible with the investing style of young investors.

3.Financial promotions & Client Communication

Firms should review their financial promotions and marketing campaign literature, to identify how young investors are targeted, whether the investment risk warnings and disclaimers fit the consumption habits and understanding of young investors. Firms may wish to ensure the principles of fair, clear and not misleading are applicable through the target market lens of a young investor.

4.Product Design – design and review with the young investor in mind?

As part of firms’ existing Product Governance and Consumer Duty outcome activities, firms could consider whether client segmentation analysis at the product design stage covers young investors when reviewing the target market, objective and client needs of the product/service.

5.Training and empowering staff

Continuing the FCA’s strategic theme, firms might look at the learning and development opportunities available to their staff and identify any training needs to ensure staff are informed and equipped with the tools to enable them to better support the next generation of investors.

Conclusion

The InvestSmart campaign is rooted in the FCA’s strategic desire to empower and educate consumers to achieve their financial objectives and needs. It is directly linked to the newly established Consumer Duty building block of the cross-cutting rules.

The campaign itself provides an important insight into the mindset of the regulator and indicates to firms that the desired direction of travel is for them to live and breathe the spirit of the newly created Principle 12.

To learn more about the new Consumer Principle, tailored consumer testing and support frameworks as part of the FCA Consumer Duty, check out our other blogs in this area, or get in touch with Paul Fraser, Jessica Castellino or Caroline Bones