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Dealing with the ticking complaints timebomb

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Over the past few years, complaints have become a real concern in the financial services industry. Every year, hundreds of thousands of people take their unresolved complaints to the Financial Ombudsman Service because they are unhappy with the way their original problem has been dealt with.

The issue has become particularly critical due to banks improperly rejecting demands for compensation for the misselling of payment protection insurance. To date, this has cost the banking industry well over £20bn.

At the end of last year, following a thematic review, the FCA pledged to improve complaint handling. It is asking all financial firms to take steps to ensure their complaints procedures have the interests of consumers at heart.

No longer reactive

Handling complaints is no longer about waiting for a written letter to arrive. Regardless of the source, complaints management has to be turned into a proactive business process, even more so considering the FCA’s aforementioned move. But how many firms have an established centralised complaints management function that operates across the whole organisation?

The problem is that in many cases ownership of complaints is not clearly defined, falling between the client-facing teams, operations and compliance. Often there is not even a generic definition of a complaint or a standardised process to track and record each instance, regardless of the severity. For example, what would you do about a client letter suggesting a firm’s website needs improving as information is difficult to find and act upon? It may be discarded  as “yet another client moan”.

But what if that “client moan” was brought about by your own marketing material, driving the client to your website to find more information about your latest product offering? The downstream impact of such a situation can be large: revenue can be lost because the client moves their business elsewhere or, worse still, an investment is made but the client then formally complains their original decision was based on unclear  – even misleading –  information.

A source of improvement

In their broadest sense, complaints can act as a great source of feedback and should enable firms to proactively ensure internal processes are effective and bottlenecks are not introduced. It also enables the firm to implement root cause analysis procedures as standard practice in order to ensure continuous improvement of weak or broken processes.

It is also imperative employees are educated to understand the business benefits of identifying and recording any client feedback even if it relates to them personally. How a complaint is dealt with is a reflection of the firm.

The cost of complaint escalation

Allowing minor complaints or negative feedback to escalate is expensive. Apart from the financial penalties and any resulting settlement, the cost of having to retrieve information relating to the complaint in order to make a case to the regulator or in court can be heavy. Having all this information located in one repository can save a lot of time and expense.

For an advice firm with high- net-worth clients, the cost of losing one is probably more than the technology spend involved in establishing an efficient complaints management system. Compounding the problem is the fact an unhappy high-net-worth client is generally well networked and able to spread the word about his/her dissatisfaction effectively. The reputational damage to the firm resulting from a regulatory enquiry or court appearance becomes even greater. Furthermore, when a complaint reaches court, the time demanded of senior management also increases.

To quote former director of supervision at the FCA Clive Adamson: “Straightforward and effective complaints  handling is an important aspect of how firms treat their customers. Understanding the underlying reasons for complaints can help head off future problems. It is in everyone’s interest to consider how to make complaints handling more effective.”

I could not agree more. It is crucial for everyone in the industry to take note and act upon this to avoid any lurking danger of costly litigation.

Chris Kaye is director at CCL

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Comments

There are 3 comments at the moment, we would love to hear your opinion too.

  1. An interesting article and the explosion of the Complaints Management Industry with its maverick and seemingly unregulated approach (despite regulation ostensibly) is something which many businesses have failed to grasp.

    The fact too that there are few investment loss related complaints in markets which have lifted all ships over the last six years is also relevant too, meaning that any universal upset is likely to ‘encourage’ far more claims regardless of due diligence and appropriateness at the point of advice and thereafter – have you made allowances for that in your pricing now as insurance?

    Wait too for the claims alleging under-performance against a suitably after-the-event benchmark, let alone those complaints connected with a residential property market crash and encouragement to gear-up through Buy-to-lets….

  2. Just wait till the complaints from Trashing the Cash start coming in. The new Freedoms will be the Freedom to make advisers lives a misery.

  3. Douglas Baillie 11th June 2015 at 5:05 pm

    One of the main problems is the escalation in the number of Claims Mnagement Companies (CMCs),who throw all kinds of vexatious, disingenuous and meritless complaints at IFA firms without fear of incurring any costs to themselves or any downsides for them or their greedy, irresponsible clients.
    We however have to follow our FCA approved complaints procedures to the latter, and that can be very time consuming and expensive to deal with properly.
    I have seen highly generic complaints generated by CMCs flying around that are non-specific, low on detail, high on legal rhetoric, very threatening, and miles away from the FOS guidelines.
    Some CMCs simply ignore any attempt by the IFA to resolve matters, and simply pass everything on to the FOS to use as a free ‘clearing house’. This of course then counts as a chargeable FOS case and the IFA can do absolutely nothing about it irrespective of the eventual FOS outcome.
    You can be certain, that following the new ‘pension freedoms’ that there will now be a massive escalation in these CMC activities whose only interest is in securing a huge % of the eventual compensation, irrespective of the veracity of their case.

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