Consumer Duty: avoiding dealing with Behavioural Bias just might be a bias in itself!

Right now, firms are working out what to prioritise to be as compliant as possible with the Consumer Duty by the end of July.

One thing they must wrestle with is how - and how far - to interpret and apply the Duty’s exhortations to pay attention to ‘behavioural bias’.

That the response on behavioural bias has been a bit mixed so far is no surprise.

For one thing, many FS firms may have limited understanding of what bias implies in this context (outside of the biggest brands which tend to have in-house specialists) .

Cognitively speaking, the field of behavioural science doesn’t feel ‘fluent’ (i.e. intrinsically comprehensible) - it’s a bit of a black box. So it becomes natural to pay more attention to other, more familiar workstreams - rather than getting stuck into the weeds of when is a nudge actually a sludge, and so on.

What’s more, the FCA have been somewhat vague about the definition of behavioural bias over the course of their 120 pages of guidelines, deliberately handing responsibility over to firms to define it in their own terms.

And, while a bespoke application rather than one-size-fits-all does make sense, it also makes the task of applying the principles even harder, or less ‘cognitively fluent’. Where do you start?

In the absence of clarity from the FCA, some (though not all!) firms have fallen back on a bit of confirmation bias to explain away the importance of thinking this through rigorously - either behavioural bias is something to worry about only at point of sale, or something that will be picked off naturally through the process of reviewing customer journeys and outcomes.

In fact, ‘behavioural bias’ is neither of these things. Firstly, it isn’t just about ethical selling techniques - it runs right through the customer journey, as the Duty makes clear.

Even more importantly, understanding the consumer world through a behavioural lens is an enhancement to more traditional routes to customer empathy, building an extra layer of explicatory power and insight into why people do things and how to help them have good outcomes. And those extra layers of analysis need to be consciously applied.

The ‘psychological’ element is a critical ‘layer’ (in addition to the behavioural). The Consumer Duty goes beyond nudge to emphasise customers’ emotional states and contexts. A full appreciation of all the human influences on decision-making and outcomes is ultimately what’s required here.

Let’s be clear - this doesn’t have to be difficult. We’re not saying that applying behavioural bias really is some esoteric art. In reality, it’s about understanding psychological principles that we all can recognise in ourselves to drive greater customer centricity.

Knowing this, we can build fluency in behavioural bias within organisations.

But to do that we need to get to grips with the FCA’s intentions, to create structure around what that means for the four different outcomes, and to chunk down the amorphous term ‘behavioural bias’ into meaningful, actionable strategies that firms can apply.

Right now, FS companies are wondering how their peers and competitors are responding to the Duty.

To help with this, IB are leading a roundtable after Easter (2023) on the subject of behavioural bias, where firms will share their thinking and challenges, and we’ll explore how to build strategies and capabilities to embed behavioural thinking for the long term.

If you would like to join us at our roundtable on April 20th, we have a few spaces left - drop Jamie Halliday an email on jamie@weareib.co.

Images by Jake Nackos and Ryoji Iwata from Unsplash