Consumer Understanding: Why Evidence Is Now the Hard Part

Most firms have a good handle on the Consumer Duty's four outcomes. Products and services, price and value, consumer support — these are tangible. You can audit them, benchmark them, and evidence them with data.

But consumer understanding is different.

Not because the principle is unclear — the FCA has been direct: firms must ensure their communications equip consumers to make effective decisions. The challenge is proving it.

The Gap Between Intent and Evidence

Every firm we speak to says the same thing: "We've rewritten our documents. We've simplified our language. We've tested readability."

And they're right. Huge effort has gone into plain English reviews, Flesch-Kincaid scoring, layout redesigns. That work matters. But none of it answers the FCA's actual question:

Do your customers genuinely understand what they're buying, what it costs, and what the risks are?

Readability scores tell you a document can be understood. They don't tell you it is understood. And the FCA knows the difference.

What the FCA Actually Wants

The Consumer Duty is outcomes-based. For consumer understanding, that means firms need to show:

1. Communications are tested with real consumers — not just reviewed internally or scored by algorithms
2. Comprehension is measured, not assumed — do customers understand what they've read?
3. Vulnerable customers are specifically considered — does understanding hold across different needs and capabilities?
4. Findings lead to action — when testing reveals gaps, what changed?

This is a high bar. And most firms aren't there yet.

Why Traditional Approaches Fall Short

Readability Tools

Flesch-Kincaid, Gunning Fog, and similar metrics measure sentence length and syllable count. They're useful as a first pass, but they can't assess:

• Whether financial concepts are genuinely understood
• If risk warnings are taken seriously versus skimmed
• Whether customers can apply information to their own decisions
• How layout, structure, and emphasis affect comprehension

A document can score well on readability and still leave customers confused about what actually matters.

Internal Review

Subject matter experts reviewing their own communications is necessary but insufficient. The curse of knowledge means internal reviewers can't easily see what's unclear to someone without their background. A paragraph that seems perfectly clear to a compliance team may be impenetrable to a retail investor.

Customer Feedback

Complaint data and satisfaction surveys capture extreme cases — the customers who are so confused they complain, or so satisfied they respond. They miss the large middle ground: customers who don't fully understand but don't raise it, customers who think they understand but don't, and customers who disengage before they even try.

The Evidence Challenge

So if readability scores, internal reviews, and customer feedback aren't enough — what does good evidence look like?

The FCA's guidance points to:

• Consumer testing of key communications before they go live
• Comprehension questions that measure whether customers can identify key features, costs, and risks after reading materials
• A/B testing of different communication approaches
• Ongoing monitoring of whether understanding translates to better decisions
• Specific focus on vulnerable customers within target markets

This is robust, rigorous, and — for most firms — resource-intensive to the point of being impractical at scale.

A mid-sized investment manager might have dozens of fund factsheets, KIIDs, application forms, and ongoing communications. Testing each one with representative consumers, measuring comprehension, iterating, and retesting is a significant operational challenge.

What Firms Can Do Now

1. Prioritise by Risk

Not every communication carries equal risk of consumer harm. Focus evidence efforts on:

• Product selection materials — where misunderstanding leads to unsuitable purchases
• Risk disclosures — where comprehension directly affects decision quality
• Cost information — where confusion leads to unexpected charges
• Switching/exit communications — where misunderstanding creates barriers

2. Build Lightweight Testing into Existing Processes

Consumer testing doesn't have to mean formal research panels for every document. Consider:

• Quick comprehension checks with a small sample of target market customers
• Digital tools that test understanding inline (e.g., "Before you proceed, which of these statements is true about this product?")
• Call centre feedback loops — systematically capture what customers ask about or misunderstand
• Adviser feedback — advisers see firsthand what clients struggle with

3. Use Technology to Scale

AI and automation can help bridge the gap between what the FCA expects and what's operationally feasible:

• Automated readability and clarity analysis as a baseline
• AI-powered consumer perspective testing — simulating how different customer segments might interpret communications
• Pattern detection across customer interactions to identify systematic understanding gaps
• Continuous monitoring rather than point-in-time reviews

4. Document Everything

The FCA values the process as much as the outcome. Even if your evidence isn't perfect, demonstrating a systematic approach matters:

• Record what you tested and why
• Document findings and actions taken
• Show iteration — first version, feedback, revised version
• Track metrics over time to show improvement

The Bigger Picture

Consumer understanding isn't just a compliance requirement. It's the foundation of every other Consumer Duty outcome.

• Fair value means nothing if customers can't assess what they're getting for what they pay
• Product suitability fails if customers don't understand what they're buying
• Consumer support is undermined if customers can't articulate their needs because they don't understand their products

Firms that crack consumer understanding evidence won't just satisfy the regulator — they'll build genuinely better customer relationships and reduce downstream complaints, switches, and poor outcomes.

Where This Is Heading

The FCA has been clear that Consumer Duty implementation is iterative. Expectations will rise. Firms that start building evidence frameworks now — even imperfect ones — will be better positioned than those waiting for prescriptive guidance that may never come.

The firms that will lead aren't waiting for perfect solutions. They're starting with what they have, learning from what they find, and building systematic evidence that their customers genuinely understand what they're being told.

The hard part isn't knowing what to do. It's proving you've done it.

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Need help evidencing consumer understanding? Miggins helps firms analyse communications, test comprehension, and build evidence frameworks that satisfy Consumer Duty requirements. Get started to see how.