As financial markets enter a period of change and turmoil, the way they are marketed will also need to be addressed writes Abi Wood
IFAs maintain a unique position in occupying the middle ground between consumers and financial services brands. In this role they are able to offer customers impartial advice and support, providing them with in-depth knowledge of the financial products and services the market has to offer.
Particularly in the wake of the recent global financial crisis and with the threat of recession looming on the horizon, IFAs have arguably never been more important in marshalling the customer relationship with a brand. With little confidence in banks and building societies, consumers are seeking reassurance that the financial decisions they make are based on sound and trustworthy advice.
Recent research from Tangible Finance has highlighted an important issue, namely that 28% of consumers admit they do not understand the financial crisis. And while 72% claim to have taken direct action as a result of economic instability, this is more likely to be by reducing their daily expenditure as opposed to making any fundamental changes to how they better manage their finances.
Focus shift
This is a situation in which IFAs are essential - by being able to offer customers sound and robust advice, and helping them to navigate their own finances in the wake of an unstable economy. Their ability to help build understanding of the impact of pressures faced within the banking sector is also important. Many analysts and observers suggest that banking will shift its focus from the commoditised view it has maintained in recent years, meaning further turmoil and confusion as the very nature of available products and services moves from a low cost approach to a more service-led mentality.
All these changes mean the way financial services are marketed to consumers will need to be addressed. Central to this will be the FSA's Treating Customers Fairly (TCF) guidelines. Good communication of an organisation's products and services is fundamental to that proposition as it seeks to improve and clarify financial marketing to consumers. Under the guidelines, financial providers need to supply all the information an individual needs to make a balanced choice about financial products. Products and services marketed and sold must meet the requirements of identified customer groups and be targeted accordingly. Providing customers with clear information that keeps them informed before, during and after point of sale will be essential.
When it was first launched, TCF was designed as a comprehensive tool for the FSA to ensure customers were being provided with sufficient information in easy to understand formats. But in light of the events of the last six months, TCF has risen in importance in shaping the future of marketing for the financial services sector, helping to structure the way banks and other financial institutions rebuild customer trust and confidence, while marketing new approaches to products and services. TCF has already had a much wider impact on the financial industry than originally envisaged, but its principles are coincidentally aligned with best practice in marketing and most importantly, reflect what is also best for recipients of financial details in terms of clear and concise information delivery.
It is here that the role of providing easily comprehensible paper communications comes in, whether provided to an adviser's clients as part of the consultation process, or supplied to use in follow-ups on discussions and provide more details on services. The FSA has expressed concerns that many companies are relying on sales departments and distributors to research or test products and supporting literature. Best practice in accordance with TCF would therefore mean that ensuring the information produced is appropriate for the intended user by measuring their understanding of the product information.
Royal Mail recently undertook research in conjunction with the Henley Centre to clarify how people approach financial marketing information and consequently what they regard as clear, fair and honest financial communications. The research found that consumers feel three major points most impact their understanding of financial literature: clarity and honesty of the offer, layout and language.
In terms of layout, simplicity is key. Information should be easy to read - in-depth or at a glance - and structured in a clear and legible fashion. Henley found that consumers respond especially well to bullet points, headed paragraphs and top-line summaries, as well as easily identifiable ways to access further information. Added product details should be provided through direct mail or spread out over time so as to avoid information overload.
Small print can prove a barrier to consumer understanding. Companies have to be careful not to overload readers with jargon, as those with less experience of the financial market may not fully understand certain terms. Henley identified these to include 'APR', 'LTD', 'interest rate payable' and 'no added fees'. Some providers may benefit from providing fact sheets helping consumers to understand terms and how specific products work.
Simple terms
Customers are seeking clarity and honesty in the length of terms the rates or quotes are applicable for, the scope of percentage claims, difference between various rates quoted, extra charges, penalties, repayment information, and how to calculate values shown. The survey also found people respond well to examples of actual costs of loans over defined periods, comparison tables, explanations of the key points of the product and 'things they should know', as well as contact information including phone numbers, websites and addresses.
Following this research, Henley made a number of recommendations to help companies create effective literature in line with TCF. Marketing materials should be targeted at the capabilities of different consumer segments, recognising that there is a range of knowledge and experience on financial matters. Free helplines should be publicised in marketing materials, and further educational publications and self-service websites should be provided so consumers know how to contact providers for clarification. Jargon should be avoided or clarified in text, not in footnotes, and the length of small print and notes in documentation should be minimised.
With these recommendations in mind, the mail is ideally suited for providing product literature directly to customers and conveying the essence of TCF in financial marketing communications. Of all distance marketing channels, mail lends itself most easily to provision of all pertinent product details to the target demographic groups without wastage. Space is not limited in posted communication; organisations can take all the room they need to explain products in clear language and provide all the necessary details to help customers understand in print, something which other media cannot provide. Given the admitted low levels of consumer financial understanding particularly prevalent at the moment, providing recipients with clear, fair and honest postal communications which present occasionally complex topics in a straightforward manner means recipients can take the time to understand all the details, or seek further clarification if needed.
In addition, customers can read and digest information provided at their leisure. Printed material can be compared with other offers to make sure customers are getting the best deals, and can also be easily tailored to suit different demographics - the first-time mortgage buyer, for example, or the experienced older person who has been through the process several times.
Information providers
Setting aside integrating the essence of TCF into their own marketing communications, IFAs are often first port of call when it comes to detailed and complex financial product information for the 'big' financial products, such as mortgages, protection insurance, investments, pensions and financial planning. They have acted as the 'clear, fair and honest' provider of information, and the FSA's initiative now means that they should be supported by the information provided by the financial institutions themselves.
IFAs currently occupy a somewhat enviable space in the financial market: close allies of consumers and financial brands, yet also able to retain a level of impartiality. Understanding TCF and its implications for communicating financial matters to the public will provide them with expertise in understanding written marketing material - an expertise that will be instrumental in advising customers on the best way of choosing from the range of financial products and services they require.
Abi Wood is head of financial sector marketing at Royal Mail.
