FCA Vulnerable Customers Guidance response

Mike Ellicock response to GC 20/3

I am responding in my personal capacity having handed over as founding Chief Executive of independent charity National Numeracy in June 2020. I am doing so because consumers need to have a basic level of confidence and competence with numbers and data if they are to make informed choices – yet a range of data suggest that this is lacking for many consumers. I am therefore keen to do what I can to support the FCA, other regulators, and the firms they regulate to ensure that the many consumers who struggle with numbers are supported appropriately.

Q2: Do you have any feedback on the updated draft Guidance?

Yes. I welcome the increased focus that the FCA (and the CMA) have brought to supporting vulnerable consumers as articulated in the comprehensive draft Guidance for firms.

Points about the document overall:

·         I welcome the additional clarity that has been provided about how the Guidance relates to your Principles.

·         My feedback here relates to an underlying aspect of both the Capability and Resilience drivers: consumer (and staff) numeracy levels. Numeracy is an underpinning factor within both Capability and Resilience drivers because it encompasses both competence and confidence with numbers – there is a complex relationship between the two with marked variation by gender and age (see Building a Numerate Nation: confidence, belief and skills and this Money Advice Service research for more on this).

·         The data from the Financial Lives survey represented in Fig.3 provides a misleading and inaccurate overview of the proportion of UK adults displaying Capability and Resilience drivers and should therefore be removed. I understand that the data was generated from self-reported capability, which often bears little correlation with actual capability. If this was the case then it is not surprising that it does not correlate with data that is used within OP8 (nor, I suspect with the latest Financial Lives data, which is not yet in the public domain). OP8 used the latest available government data on Adult Numeracy levels (Skills for Life survey 2012) and these data have been corroborated by National Numeracy’s findings over the past 8 years. The headline is that c. ½ adults in the UK have the numeracy level that we expect of a primary school child and over ¾ are below the level that we expect of a 16-year-old. As displayed in Appendix 1 below, this means that poor numeracy is the consumer vulnerability that affects a greater proportion of UK adults than any other vulnerability.

·         Given this, the Guidance needs to bring greater prominence to the fact that many consumers struggle to understand numbers and data.

·         The Guidance also needs to make clear to firms that their work to ensure that their products and services meet the needs of these customers needs to address this issue – perhaps through a ‘Plain Numbers’ approach, equivalent to the Campaign for Plain English and their Plain English Crystal Mark.

·         A specific point but I wanted to flag here – the literacy data in 4.19 is wrong and should therefore be corrected, alongside adding numeracy data.

 Specific points:

·         1.15. 1.16 and Fig.3 – To avoid inconsistency with other sources and thereby misleading firms, please replace with the latest Financial Lives survey data and/or OP.8 data

·         1.23 – The focus on the need to identify and respond to the needs of vulnerable consumers throughout the whole consumer experience is welcome and appropriate. Identifying and responding to consumers current understanding of numbers and data specific to the product and service throughout the consumer experience is a considerable undertaking. It would seem sensible to start this process by checking the current assumptions about the capacity of consumers overall and specific consumers identified as vulnerable. National Numeracy findings to date suggest that this current capacity with numbers and data will be far lower than firms, or the FCA, expect – see Appendix 2 below.

·         1.33 - The FCA should provide more support to firms to enable them to understand the nature and scale of vulnerability. Appendix 1 provides an accurate overview of the scale of those vulnerabilities identified in Op.8.

·         1.34 and 1.35 – National Numeracy findings across a range of domains suggest that many staff also struggle with numbers and data. Firms should recognise the likely need to include practical support to frontline staff in this area, so that they can then better serve consumers who share this vulnerability.

·         1.40 – The data in Appendix 2 suggests that many current products or services are overly complex for most consumers i.e. if the FCA or firms themselves replicate the 5 generic questions below with questions at a similar numeracy level that relate directly to the product or service and then survey customers or potential customers then this is likely to reveal a gap in current capacity. This research is needed and should be funded and led by the FCA.

·         1.47 and 1.49 - The data in Appendix 2 suggests that it is unlikely that current communications and information about products and services are understandable for consumers in firms’ target market and customer base. Research to check this is needed and should be funded and led by the FCA.

·         1.51 – Monitoring and Evaluation needs to start from a firm understanding of current vulnerabilities. The combination of the two Appendixes included here provide a useful starting point to understand the scale and nature of the innumeracy issue among consumers in the UK and should therefore be shared with firms.

·         2.6 and Table 1 – it is good to see numeracy mentioned. A breakdown of the scale of each of these types of characteristics would be useful based upon OP8 data and / or the new Financial Lives data

·          ‘Examples of how firms can put this into practice’ table on p.74 – There is a disconnect between people’s perception of their capability and the reality. This can work both ways (i.e. both over- and under-confidence) as revealed in this Money Advice Service research along with National Numeracy’s latest research report: Building a Numerate Nation: confidence, belief and skills. We have found that market research in the form of self-perception-based surveys and focus groups fail to capture this disconnect and could therefore lead to an internal vulnerability policy that failed to reflect actual Capability (and Resilience) issues. Either the above research needs to be shared more widely or the FCA should commission new research to enable firms to put the vulnerability guidance into practice based upon accurate data.

·         2.14 – This Do interventions that improve financial capability work for people with low numeracy? Research paper was based upon a retrospective analysis of data within the Behavioural Insights Team’s Financial Capability Lab research. It suggests that people with lower numeracy levels may be more susceptible to behavioural biases and that behaviourally based interventions may not be successful in improving their decision making. More research is needed in this area and this should be funded and led by the FCA.

·         Chapter 3 – as raised above with reference to 1.34 and 1.35, National Numeracy findings across a range of domains suggest that many staff also struggle with numbers and data. Firms should recognise the likely need to include practical support to frontline staff in this area, so that they can then better serve consumers who share this vulnerability. There is free support from National Numeracy to enable staff to improve their confidence and competence with numbers and data – and integrating a ‘Plain Numbers’ approach should involve training for staff on this specific but widespread vulnerability.

·         4.19 and ‘Examples of how firms can put this into practice – Inclusive design’ on page 84. The statistic that is quoted about literacy is wrong – as the link to the National Literacy Trust shows. The statistics from the Skills for Life survey reveal that 1 in 7 (not 1 in 6) adults have the literacy skills expected of a 9 to 11-year-old (not a 9-year-old). The 1 in 6 relates to the more recent PIAAC survey but for that there are no age equivalencies. Either way, in both surveys the scale of the numeracy issue is significantly greater: it is 1 in 2 adults with the numeracy skills expected of a 9 to 11-year-old in the Skills for Life survey. Please could you both include the numeracy statistics and correct the literacy ones? In addition, if ‘easy to read materials in plain English’ is suggested, it would make sense to raise the potential for a plain numbers equivalent too.

·         4.47 – 4.55 Supporting decision-making and third-party representation – please see Appendix 2 below to exemplify the headline numeracy statistic: ½ adults have the level that we expect of a primary school child. Quite understandably this section of the Guidance focuses on ‘reduced cognitive ability’ related to old age, disability or injury. However, there would seem to be a disconnect: we do not allow primary school children access to most financial services products yet at no stage do we (currently) check that adults have the cognitive capacity to use numbers and data to make an informed choice. This is an area that needs further research - this should be funded and led by the FCA.

·         4.64 – poor numeracy should be mentioned

·         4.68 and ‘Examples of how firms can put this into practice’ – adopting a ‘plain numbers’ approach to representing numbers and data should be included. This is not straightforward; many infographics do not make it easy to understand the underlying numbers and data – see the infographic on p.9 of OP.8 versus Appendix 1 here for example, and is unlikely to be welcomed by firms - so impetus needs to be given to this by the FCA and other regulators if practical action is to be taken by firms to address this vulnerability.

·         4.72 – feeling rushed is a significant issue for people who struggle with numbers and data, many of whom have what is termed ‘maths anxiety’. This is an issue affecting a significant minority of the population, for example, in a 2019 Ipsos-Mori poll conducted by National Numeracy, 29% of women described themselves as maths anxious and 1/3 of all those surveyed said that they are not a ‘numbers person’. The FCA should make firms aware of this issue within the Guidance.

·         5.6 – The contact that National Numeracy has had with FCA-regulated firms over the past eight years would suggest that there are no firms currently that ‘fully understand vulnerable customers’ needs’ in relation to confidence and competence with numbers and data. There is support potentially available on this for the whole customer journey, including quality assurance – but as above impetus needs to be given to this by the FCA and other regulators if practical action is to be taken by firms to address this vulnerability.

Q4: Do you have feedback on what we should prioritise when monitoring firms’ treatment of vulnerable consumers?

Yes.

Financial Services are built upon numbers and data – yet the latest government data on Adult Numeracy levels that were used in OP8 and are displayed in Appendix 1 below suggest that circa ½ adults struggle to use numbers and data to make good decisions. Poor numeracy is therefore the consumer vulnerability that affects more adults in the UK than any other – yet this does not (yet) come across in the current Guidance. I suggest that alongside the points above to strengthen the Guidance on this, consumer understanding of numbers and data is a central element within your monitoring of firms’ treatment of vulnerable customers. There are two main advantages to this approach:

1.       It is easy to measure actual understanding (please don’t use self-perception metrics!)

2.       Measuring customers’ understanding of the numbers and data relating to the specific product or service is an excellent proxy metric for many other consumer vulnerabilities; ultimately if they understand the numbers and data then they are in a position to make an informed choice and if they don’t then they are not.

I am happy to help both the FCA and / or firms develop appropriate protocols to do this efficiently and cheaply.

Q5: What types of information do you envisage it would be necessary for firms to collect, to assess the effectiveness of their policies and processes in respect of vulnerable consumers?

 As above, I suggest that consumer understanding of the numbers and data that relate to a specific product or service is a central element within firms’ assessment of the effectiveness of their policies and processes in respect of vulnerable customers.

 There are two main advantages to this approach: 

1. It is easy to measure actual understanding (please don’t use self-perception metrics!)

2. Measuring customers’ understanding of the numbers and data relating to the specific product or service is an excellent proxy metric for many other consumer vulnerabilities; ultimately if they understand the numbers and data then they are in a position to make an informed choice and if they don’t then they are not.

 As above, I am happy to help both the FCA and / or firms develop appropriate protocols to do this efficiently and cheaply.

Appendix 1:

FCA Occasional Paper 8 - Consumer Vulnerabilities, 2015

 Appendix 2:

 To exemplify the current capacity of consumers to understand numbers and data here are five questions from the National Numeracy Challenge that were used in an Ipsos-Mori poll of adults across the UK last year.

 Please estimate what proportion of the representative sample of the UK population answered the five questions correctly – using a calculator or their phone - answer in endnote [i] .

Questions used by Ipsos-Mori survey of a representative sample of the UK adult population

  [i] Only 6% of the representative sample of the UK population answered all 5 questions correctly. (4/5 = 14%, 3/5 = 24%, 2/5 = 27%, 1/5 = 19%, 0/5 = 10%). This is broadly in line with the latest government-commissioned data on adult skills levels and also data on over 200,000 adults who have engaged with the National Numeracy Challenge.