The good news is that there has been excellent progress among firms in the quality and consist-ency of service but there is still a lot of work to be done.
The research indicates a signifi-cant proportion of firms were giving objective and clear advice and the vast majority were also offering and conducting regular reviews of customers.
All very positive but the FSA also highlighted several areas of real concern. First, how firms use management information. It would appear that MI is not being used authentically to better analyse their policies and processes as part of ensuring they treat customers fairly. They must also work harder to demonstrate that they have effective systems in place to monitor advice processes. In some cases, customer files were monitored more for completeness, rather than the quality of advice given or information gathered.
Second, the FSA believes that firms must work harder to prove they have done their homework when assessing customer needs, specifically with regards to customer objectives, their fear of risk and their full financial background.
Third, firms visited by the FSA had some communication problems, particularly in the area of suitability letters. These must be, as the FSA says, “clear, fair, and never misleading”. Frankly, such phrasing from the FSA is worrying, as it suggests some firms are still lagging behind in their sense of customer responsibility in these letters.
The problem letters identified offered little in the way of explanation of why a consumer would switch products. The FSA claims some are still using jargon and are still unclear about both charges associ-ated with products and potential risk.
Finally, the issue of payment. Some of the mystery-shopped firms did not offer a fee-payment option and others were actively dissuading customers from paying by fee.
We must take heart from the positives identified by the FSA but it is disappointing to know that many of these problems still abound. It may speak more to bedding in best practice rather than actual intent, but that hardly matters to the customer getting less than the service he or she deserves.
Building consumer trust and confidence is paramount. This is a major year for regulatory developments, with both TCF and RDR coming to a head. It is crucial that each firm is clear on what it needs to do to meet TCF requirements. The FSA evidence suggests a mixed picture so far. As we face an economic downturn, financial advice, and how we give it, will become even more important.
In its Financial Risk Outlook, the FSA predicts that the lower supply of secured credit and tighter lending standards for mortgages means more consumers are going to be facing debt problems. Firms must not shirk their duties to clients, nor should they forget the importance of fighting market abuse and other examples of corruption. It is in tough times that you are most judged by your actions and good advice to customers is more important than ever.
Tim Eadon is chief executive of the Personal Finance Society