At this point, the dealership’s general manager stepped in, offered me a car to drive home that evening, agreed to deliver my own vehicle to my work address the next day and paid me £100 in compensation for the inconvenience.
Overall, you could say that this was a perfect manifestation of how to treat customers fairly.
Contrast this with the financial services industry. In this instance, you have customers who are routinely advised badly, are sold products they do not need or understand and, when the products inevitably blow up in their faces, are left up the creek without a paddle.
It is with this in mind that the FSA has been trying to introduce a new approach to regulation through its TCF initiative, itself part of a new principle-based method for overseeing the conduct of financial services businesses.
Now, I know financial advisers have had significant reservations about principle-based regulation. Despite the obvious attractions of the new FSA regulatory model, it appears that many IFAs still believe a rulebook is better. After all, what is set out in black and white is easier to monitor – and defend in the event that things go pear-shaped.
Even so, you would have thought the idea of TCF makes instinctive sense. After all, it is not as if the FSA is asking the impossible from any firm. The regulator’s “outcomes” mean that consumers are able to feel that they are dealing with businesses where the fair treatment of customers is key their corporate culture.
This ought to mean that consumers are sold retail products designed to meet their needs, that they receive clear information and are kept suitably informed before, during and after the point of sale, and that the advice given to them takes account of their circumstances while ongoing service standards are acceptable and in line with what they have been led to accept.
Finally, consumers should not face unreasonable post-sale barriers imposed by firms when they want to change product, switch provider, submit a claim or make a complaint.
Despite its seeming obviousness, it appears that TCF is not yet fully implanted within the IFA community. The FSA’s most recent survey, published last week, found that set against its March deadline for firms to be implementing change in a substantial part of their business, just 41 per cent of small firms met the deadline.
To me, that seems shocking. Even taking into account the possibility that many smaller firms are treating customers fairly but have not gone through whatever regulatory rigmarole is involved in proving they are doing so to the FSA, that still leaves a massive proportion of IFAs that still have not fully grasped the nettle.
My other concern is that of precisely how firms interpret treating their customers fairly. Let me give you one example I have come across this week. It concerns a good friend of mine who was contacted by a big mortgage broker in advance of the latest increase in the base rate.
The “adviser” – and I am using inverted commas deliberately – basically gave him the following sales pitch. My friend’s fixed-rate mortgage is due to expire in August. Assuming rates were to rise by 0.5 percentage points before then, he would be looking at a £216 rise in his monthly mortgage. But if he were to take out a special deal with a certain unnamed lender, the increase would be limited to “just” £60 a month.
However, in this instance, the new mortgage would come with a £2,000 completion fee plus a £500 broker’s fee. The decision had to be made by close of play that day, because the offer was “closing”.
Do the sums. A £4,000 cost for switching over two years (no mention of proc fees), in return for a saving of £5,200, so a net gain after survey and legal costs, plus exit fees, of significantly less than £800.
In the event, rates went up by 0.25 percentage points, cutting the benefit of switching to barely £300 over two years. Even that did not take into account the additional interest to be paid, as the completion fee would be added to the loan.
How is offering such a product fair to the customer?
In another example passed on to me by Chris Moxon, of Skipton-based adviser CW Moxon & Co, Standard Life is refusing to allow the transfer of a pension fund maturing at its selected retirement date to another provider without charging a market value adjustment. The transfer would allow the policyholder to obtain a better annuity by adding all her assets together.
That appears to me to fly in the face of the TCF principle whereby there should be no unreasonable post-sale barriers to switching. Yet I am willing to bet that Standard Life has or is about to pass its TCF deadlines with ease.
What firms appear to be doing is paying lip service to TCF without understanding how they should be applying it in practice. If so, this makes a mockery of the FSA’s approach towards less rules and more principles.
Nic Cicutti is the editor of moneysupermarket.com. He can be contacted at firstname.lastname@example.org