There have been substantial and repeated efforts made by protection and long-term savings providers and advisers to improve their image over the last 10 to15 years. However, the misselling reputation has stuck, with UK savers still seen to be at the mercy of life insurers and salespeople.
The reputation for forceful commission-based sales has not been fully addressed by the strong growth and professionalisation of independent financial advice.
The move from opaque products to simpler, transparent products will help in the future but for many years these complex legacy products will remain in force and, as long as they do, will continue to mystify the customer.
Complexity was acceptable while the good times rolled but with the equity market crash, the blame for customers’ misfortune was laid at providers’ doors. Maybe this is inevitable – perhaps the tide of cynicism and bad faith will wash in regardless of any efforts.
There is no doubt that action which boosts consumer confidence in financial services will be good for the UK in the widest social sense and it is worth building some flood-defences.
The UK needs a stable repository of wealth and stability requires trust. It is not surprising that one of the FSA’s key principles is Treating Customers Fairly.
Treating Customers Fairly (TCF) has the capacity to have a profound effect on the protection and savings market – what products are available, how they are sold and how they are serviced.
The basic rationale behind TCF is logical enough. Most of us would say that products should do what they say they will; marketing and sales materials should be clear and understandable to their target audience; sales advice should be unbiased and reliable and no hidden charges or penalties should emerge later on in the contract that were not clear at the outset.
For many providers and advisers, this is good business sense that can lead to higher customer satisfaction and improved loyalty and retention.
Here is the problem. Despite insistence on the principle that firms should treat their customers fairly, the FSA has decided not to provide any new rules to help define what this means. How do you know whether you have made yourself compliant and challenge the FSA if it deems that you are not.
Does TCF introduce unnecessary bias towards consumers who want their cake while eating it? Consumers want choice but complain that the market is confusing and there are too many products on offer. Customers like low prices but are surprised if some conditions are excluded from cover. People are happy to opt for a provider with low charges but then question the provider’s decision to provide customer service from India. Some people do try to cheat the system.
Still, TCF is coming, and all financial services firms – big or small, retail bank or insurer, manufacturer or distributor – must start to understand the implications and plan their response.
Many life offices have taken great strides towards more open, transparent, products and literature. The key is for senior management to prove that they have taken steps to ensure they are treating customers fairly.
There are no clear guidelines from the FSA but there are several questions that senior management should be asking:•How do you ensure that marketing materials are understandable and provide a balanced assessment of the risks, charges and penalties of the product as well as the benefits? How do you avoid incentivising and promoting inappropriate products? Do remuneration strategies encourage your staff to treat customers fairly? What barriers do you have that may make it difficult or expensive for customers to exit their policy? What steps have you taken to ensure that your complaints’ handling process is understandable and fair for all? What steps have you taken to check that whoever you do business with manufactures, promotes or sells products in a TCF-consistent manner? How do senior management track how fairly customers are treated? Many of these questions will apply to business that have been sold historically but there are greater challenges on legacy business.
The mechanism and process under which this business was sold – and the basis on which the provider int-ended to operate these products – might not mesh easily with the Treating Customers Fairly world. That is not to say that these products are in any way “unfair” but to recognise that expectations have moved on.
Here, in particular, there is a risk of a creeping definition of fairness over time.
As the precise requirements for Treating Customers Fairly remain undefined, those that can take the lead and set an early definition are likely to be better able to resist intrusive FSA activity. Indeed, at this stage, it is likely that the FSA would value constructive dialogue to help it shape its plans.
Finally, many providers have started big change programmes in recent years to enable them to service legacy business more efficiently and to a greater standard. It would be sensible for senior management to review these programmes in the light of Trea- ting Customers Fairly to avoid costly reversals in two or three years time as it becomes embedded.