Winning the Public’s Trust & Confidence
“Scary”, “dodgy”, “minefield”. These are just some of the adjectives used in consumer surveys to describe the financial services industry. Are they right to feel this way and is the criticism deserved?
Over recent times, the life and pensions industry has suffered from a lack of consumer confidence. Investing large sums of money in financial products without the certainty of knowing how well it will perform or what it will be worth when it is needed is, by its very nature, a stressful business. But one of the biggest reasons for consumer angst lies at the door of the industry itself – a lack of trust in the way products are communicated and sold and advice is paid for.
Since the mis-selling scandals of the 1990s, which did so much to undermine consumer trust, two significant industry initiatives have been set up to improve the way financial products are developed and marketed and to build consumer confidence and trust: The Financial Services Authority’s Treating Customers Fairly (TCF) programme, launched in 2004 and the Association of British Insurers’ Customer Impact Scheme, which started in 2006.
TCF is based on six principles. These encourage companies to create a more consumer-centric culture and develop products that meet the needs of consumers better. They also require firms to provide consumers with clearer information, better advice, more realistic consumer expectations about product performance, and to remove unreasonable after-sales barriers for consumers wanting to switch products or change providers. The Customer Impact Scheme also publishes best practice guidelines, requires each company to produce a report on progress and conducts an annual survey to discover how well customers think their product provider is performing.
So are they making a difference? While some progress has been made, the FSA is concerned that not enough firms are making sufficient headway. In 2007 the first ABI customer impact study showed that just over half those interviewed were happy with the service they received and the sales process, but less than half were impressed with the products they were sold, mainly due to performance rather than choice.
Friends Provident is an active supporter of both the FSA and ABI initiatives. Throughout 2008 we reviewed all of our major customer service processes, including claims and payments, product development and written communication, using the results from the Customer Impact survey to inform our areas of focus. The Treating Customers Fairly principles were embedded in our processes by the end of the 2008 and our Customer Impact survey results were broadly in line with industry scores. Although our customers are benefiting from some of the changes put in place, some will take longer to filter down and it may take time for them to impact our Customer Impact scores. However, we remain committed to our core mission, ‘to help our customers protect and enhance their quality of life.’
Advisory trust and value
Although the market works well for many consumers, there have been longstanding concerns over how products are sold and paid for. Some believe the commission system is insufficiently transparent and provides too much opportunity for advisers to ‘act in ways other than in the best interests of consumers’. Research also shows that many consumers are confused between the roles of sales agents and independent financial advisers, tending to refer to all of them as ‘financial advisers’.
Recognising that the retail market was not working as well as it should, the FSA published a discussion paper in June 2007 to create greater clarity on pricing and independent advice, following a Retail Distribution Review (RDR) commenced in 2006. In November 2008 the FSA published the feedback on the RDR and set out the proposals that will be taken forward to consultation. They propose a new tiered structure, with a clear distinction between the respective roles of sales agents and independent financial advisers. The FSA plans to publish a consultation paper in June 2009 and to have fully embedded all changes by the end of 2012. More information on the proposals can be found on the FSA website
Research by the FSA also showed that a key barrier to people seeking advice is the perceived value of the service provided. However, a survey by the Association of Independent Financial Advisers suggests that consumers who have had the benefit of independent advice value it greatly. The challenge, therefore, is to promote not only the role but also the value of independent advice and to demonstrate more visibly that it is genuinely independent.
We are pleased to endorse and support the FSA’s aspirations behind its Retail Distribution Review. Anything that ensures good quality financial advice is more widely available and more easily accessible can only be good for our customers, and we will do all we can to help bring about a successful outcome.
Product transparency and suitability
Many financial products are inherently complex but information about their features is often unnecessarily opaque. Disclosure documents – the "small print" - can be long and intimidating, language used is sometimes strange and unfamiliar and consumers are often unclear about what they are buying and whether it is right for them. Four out of five people rely on product information rather than advice to choose their financial product and two in five say it is their main source.
Friends Provident regularly carries out reviews of its product literature among consumers to check messages are understood and that descriptions are clear. Recommendations for improvements tend to include requests for more graphics, charts and case studies and less jargon. In 2009 a key activity is to ask more customers to provide feedback about communications they receive, as well as ensuring employees have the support they need to communicate effectively with customers.
Making sure customers get what they want is itself an issue. The Treating Customers Fairly initiative encourages firms to do more to market retail products that serve identified consumer needs rather than provide products firms could encourage consumers to buy. In its November 2007 progress report the FSA expressed concern that "there was still a tendency for product design to be driven by the benchmarking of competitors’ products rather than by identifying the needs of the target market." 2 Although this criticism was not directed at any particular company, the industry as a whole is still over-reliant on its distributors for insights into consumer needs and attitudes and has to do more to talk direct to consumers to find out what they want from their products. One of Friends Provident’s strategic priorities for 2009 is to maintain and improve our competitive strengths – of which a key element is to better understand the needs of our customers through using the insights our two intermediary businesses, Sesame and Pantheon Financial, can provide.
2. Financial Services Authority 'Treating Customers Fairly: measuring outcomes' November 2007