How Firms Can Prove Customer Understanding

Rewriting a letter can lower its reading age. But robust evidence of customer understanding comes from what people comprehend, decide, and do next.

That is the standard financial services firms must now learn to examine.

James Daley, Founder and Managing Director of Fairer Finance, has spent more than 20 years campaigning for better outcomes for financial services customers.

James spoke to us about why financial products remain difficult to understand and what Consumer Duty has changed. The core question is what a firm should be able to demonstrate before claiming that its communications support customer understanding.

Created from episode transcript

Consumer Duty Has Raised the Evidence Bar

The FCA's Consumer Duty framework is built around four outcomes covering products and services, price and value, consumer understanding, and consumer support. Those outcomes are connected. A clear letter can't compensate for a product that offers poor value, and a well-designed product can still produce harm when customers do not understand an exclusion, charge, deadline, or required action.

For James, the important change is the emphasis on evidence of customer outcomes. Firms have reviewed communications, built dashboards, and introduced testing programmes. The work now needs to show whether customers can find the information they need and use it to make an informed decision.

The FCA's 2026 review of consumer understanding practices describes design, testing, monitoring, and governance as a coherent end-to-end process. Its review of second-year board reports found progress in the use of data, alongside continuing weaknesses in outcome-focused evidence and action.

"Consumer Duty is all about evidence. You have to prove that you're meeting the requirements, which is what differentiates it from previous principles-based regulations."

James Daley, Founder and Managing Director, Fairer Finance

A completed communication review is evidence that work took place. It does not, by itself, show that customers understood the product or acted with a clear view of the consequences. Firms need to decide which behaviours, questions, complaints, support contacts, and test results would indicate that the communication worked.

Customer Understanding and Fair Value Belong in the Same Review

Some financial complexity is unavoidable. Insurance policies need to describe exclusions, while pensions, investments, mortgages, and credit products carry charges, risks, and long-term consequences. Further complexity accumulates through legacy structures, system constraints, legal review, and layers of previous communication.

The result is that plain English cannot repair poor value. It can make a weak proposition easier to see, which may expose uncomfortable questions about pricing, exclusions, service, or suitability. The FCA's updated price and value guidance similarly treats fair value as part of the wider Consumer Duty framework rather than an isolated pricing exercise.

A customer may make a commercially rational choice to pay more because they value a brand, service model, or feature. The firm should still be confident that they understood meaningful alternatives, material limitations, and the likely cost over time.

Test the Question You Still Need to Answer

Consumer testing can include comprehension studies, focus groups, interviews, journey reviews, and A/B tests. Each method becomes weaker when separated from the circumstances in which the customer would make the decision.

What Different Testing Methods Can Reveal

Quantitative testing can show whether people identify a charge, exclusion, or next step. Interviews can reveal how they interpret the wording and where their assumptions diverge from the firm's intended meaning.

Abandonment, repeated calls, complaints, cancellations, missed deadlines, and channel switching can also indicate that the communication did not support the real decision in front of the customer.

Where Testing Becomes Wasteful

Testing loses value when it keeps confirming a known problem. Another study showing that customers struggle with technical terms or buried information may produce a report without improving the outcome.

"Don't keep testing things when you know what it's going to tell you. Take the learning you've already got, and only test when there is a question you cannot reasonably answer another way."

James Daley, Founder and Managing Director, Fairer Finance

The stronger approach is to test only where uncertainty remains, such as a new product, a high-risk decision, or a choice where two reasonable designs could lead to different behaviour.

A testing programme becomes credible when its findings alter wording, timing, product design, channel choice, or support. Test volume means little when known problems remain in place.

Understanding Continues Through the Product Lifecycle

Customer understanding does not end when a document is delivered. A customer may need a reminder before a rate expires, an explanation when a charge changes, or a route to ask a question before an irreversible decision.

The FCA's review of the consumer support outcome reinforces the need for customers to access appropriate help and complete important actions without unreasonable barriers. Channel, timing, format, and support also need to reflect vulnerable customers' circumstances.

This means communication continues after delivery. Follow-up emails, text reminders, alternative formats, secure replies, and access to a person can all help the customer understand what is expected and what options remain available.

Legacy Systems Limit What Firms Can Change

Large firms may recognise a communication problem but lack the systems to fix it quickly. Communication changes compete for investment with platform migrations, remediation, and regulatory work.

That makes legacy technology part of the communication problem. It can restrict personalisation, delay prompts, separate delivery data from support data, and make modest changes expensive. This cannot excuse poor outcomes indefinitely, but it explains why change often requires difficult sequencing.

"Delivery and access records can show that a communication reached the intended person and was opened, but they do not prove comprehension on their own. Firms need to connect those records with clear next steps, secure ways to reply, support interactions, and testing where the decision carries real risk."

Paul Holland, Founder and CEO, Beyond Encryption (Mailock)

For firms that want to retain email as the delivery route, Mailock can add protected access, recipient authentication, secure replies, message tracking, and wider audit trails. These controls help firms manage delivery and access. They should sit within a broader evidence set covering comprehension, support, and subsequent customer behaviour.

Delivery evidence is useful because it narrows the question. It can establish whether the intended person accessed a message and when. The firm must still examine whether the content, timing, and available support helped that person reach an informed decision.

AI Could Widen Access or Make Customers More Passive

AI may help explain products in language and formats suited to different customers, answer follow-up questions, compare options, and identify missing information before a decision becomes urgent.

Targeted support, whose rules took effect in April 2026, also gives firms a route to make suggestions to groups of consumers with shared characteristics in pensions and investments.

James describes AI as "the great hope and the great danger". As tools perform more of the analysis, customers may become more passive and less able to question the recommendation. Firms will need clear controls over data, design, conflicts, escalation, and human accountability for the outcome.

What Firms Should Be Able to Demonstrate

A credible approach brings together product design, fair-value work, communication testing, delivery and access evidence, support data, complaints, and customer behaviour.

Firms cannot remove every element of complexity or guarantee that every customer retains every detail. They can demonstrate a reasonable, proportionate effort to identify likely misunderstandings, explain material consequences, test genuine uncertainty, and respond when evidence points to harm.

"Firms should be aspiring to the point where they can reasonably say: we've done what we can, and we really have tried to help. We've explained the things people struggle to understand, followed up through the lifecycle, and provided other ways to digest the information."

James Daley, Founder and Managing Director, Fairer Finance

That changes the purpose of communication work. The goal is to help customers recognise the decision, understand the consequences, and take the next step with enough information to judge whether the product is right for them.

FAQs

What Does Consumer Duty Require Firms to Evidence About Customer Understanding?

Firms should be able to show how they design, test, monitor, and govern communications to support informed decisions and good customer outcomes. The evidence should reflect the product, target market, communication risk, and points where misunderstanding could cause harm.

How Can Firms Test Whether Customers Understand a Communication?

Useful methods include comprehension testing, interviews, focus groups, journey reviews, A/B testing, complaints analysis, support data, and customer behaviour. The method should answer a defined question and lead to a practical change where a problem is found.

Can Clear Communication Compensate for a Poor-Value Product?

No. Clear communication can help customers understand costs, exclusions, and trade-offs, but it does not correct unsuitable design, inadequate cover, or charges that are unreasonable relative to the expected benefits.

How Could AI Support Customer Understanding in Financial Services?

AI could provide tailored explanations, help customers compare options, and answer follow-up questions. Firms still need controls over accuracy, data use, conflicts, escalation, and access to human support when the decision or customer circumstances require it.

References

About the Consumer Duty, Financial Conduct Authority, 2026

Consumer Understanding: Good Practice and Areas for Improvement, Financial Conduct Authority, 2026

Year 2 Consumer Duty Board Reports: Progress and What Comes Next, Financial Conduct Authority, 2026

Price and Value Outcome: Good and Poor Practice, Financial Conduct Authority, 2026

Consumer Support Outcome: Good Practices and Areas for Improvement, Financial Conduct Authority, 2025

PS25/22: Supporting Consumers' Pensions and Investment Decisions - Rules for Targeted Support, Financial Conduct Authority, 2025

Reviewed by

Sam Kendall, 15.07.26