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January 2013

Customer Focus

Mr Stephen Rosling of TCF Matters explains why some financial services companies are still not treating their customers fairly though not for want of trying. Stressing that customer satisfaction is not the same as treating the customers fairly, he uses the UK scenario to elaborate what was done there, what needs to be corrected and what are the best practice tips firms can employ.

Treating Customers Fairly – Not a simple task!

Let’s start with a little history….Back in the summer of 2001, the UK Financial

Services Authority (FSA) issued a discussion paper en-titled “Treating customers fairly after the point of sale.” The catalyst had been the new Financial Services and Markets Act and the key point of discussion was how to achieve the objective of “protecting consumers.”

Over the next few years, the FSA entered into various discussions and consultations with industry bodies, con-sumer organisations and financial services firms. In fact, the FSA published 18 discussion documents over the course of seven years up to the end of 2008 - this did not include case studies, guidance publications, cluster reports, speeches and press releases. So there was no excuse that it would be a surprise. By the end of 2008 firms were expected to have reporting mechanisms in place that would provide evidence that their customers were being treated fairly.

Why were the firms not ready?However, over the following two years, the FSA fined 23 organisations approximately GBP14.5 million (US$23.2 mil-lion) as a direct result of not treating customers fairly. (There were also several bans and public censures). Interestingly, the list of 23 did not include a single bank.

So, after seven years of consultation and planning, why were firms not ready, and not able to comply with the new requirements? Was it because: • Firms and the industry did not understand what was

meant by “fairness” (and how this differed from satisfac-tion).

• The FSA did not understand what they meant by “treat-ing customers fairly”.

• The industry did not think the FSA would enforce TCF.

• Or maybe they thought that regulation alone was enough to change the culture of organisations.

• Or was it all of the above?

Whatever the reason, it is clear that change was, and remains, needed. Customers around the globe would tes-tify to this – even those that have not been mis-treated by financial services firms.

And, rightly or wrongly, (or fairly or unfairly), a significant proportion of people continue to put insurance, banks, bro-kers, and pension companies all under the same umbrella.

This lack of trust and differentiation was highlighted in the 2012 Edelman Global Trust Barometer where banks and financial services remain firmly rooted at the bottom on 47% and 45% respectively (both results were worse than those in 2011).

So, we are left with some key questions:• What do insurance companies need to do to create,

build, (and restore?), trust with their customers?• How will their customers know what changes they have

made?

To help understand the answer to these questions, it is worth trying to understand where the FSA and banks went wrong and, (if only by association), where the rest of financial services went wrong. I have picked three key areas to discuss, however, there are others.

Controls, controls, controls Consciously or not, it seems that many organisations de-voted significant resources and time into developing TCF related processes and controls, at the expense of enough time being spent on behaviours.

Cottage industries quickly developed, focussing sig-nificant amounts of time and resources on the monthly compilation of Board MI (management information) packs. It was not unheard of for organisations to produce multiple reports each month totalling around 50 pages of A4.

I am sure you can imagine the layers of people and processes required to produce this each month - systems, procedures, resources, checks, double-checks, all had to be in place. And this was just the tip of the iceberg – reporting of TCF related data was often duplicated and triplicated in separate risk management and compliance reports.

So, what were the consequences?:• There was a distinct culture of “copy and paste” from

month to month because everyone knew that senior directors had no time, (and maybe not enough interest?) to read the reports.

• The next reporting cycle would commence almost as soon as the previous one had completed.

• There was not enough time spent on cultural work.

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Customer Focus

• Andlastly,butmostimportantly,issuesimpactingoncustomerswerenotprogressedwithappropriatepace.ThekeypointisthatTCFwassimplybeingseenand

managedasareporting“tickbox”exercise.Thefocus(con-sciousorotherwise)wasontheprocess,notthecontentandnotonthecustomer.

What’s the difference between customer satisfaction and fairness? This,unfortunately,isnotajokequestion!Thisissuecon-sumedvastamountsoftimeanddiscussionwithnorealdefinitiveconclusion.Andthat’sbecausefairness iscon-siderablymoredifficulttodefine(andthenmeasure)thansatisfaction.

WhattheFSAwereunabletoprovide,butwhat the industry reallywanted, was adefinitivemeaningoffairness.Andthisiswhereitgotevenmoredifficult–whatyouthinkisfairmaynotbethesameaswhatthecustomerthinks.

It was also clear that many firmsput greater emphasis and priority oncustomer satisfaction surveys. Theseoftenpaintedaverypositivepicture,butgiventheleveloffinesbeingraiseditwouldnotbeunreasonabletothinktwiceaboutanorganisationthat,ontheonehandspeaksverypub-liclyabouttheimportanceofcustomercare,yetatthesametimeisfinedandpenalisedfornottreatingcustomersfairly.

In fact, therehasbeenavery recent exampleof thisbehaviour. In September this year, “Discover Bank”wasordered torefund$200million to3.5millioncustomersforusing“deceptivemarketingtactics.”Aquicklookatthewebsite,however,andyou’llfindthismessage:“Takingcareofcustomersisattheheartofeverythingwedo.”

TCF is not just another project It is well established and accepted that the CEO of anorganisation sets the cultureand toneof theirbusiness,aswellasthestrategicdirectionandassociatedpriorities.

IfweweretoacceptthattheprinciplesofTCFrequiredaculturalshift,thenitfollowsthatinordertoachievesuchachange,theCEOwouldneedtoplayakeyrole.ThiswasundoubtedlythecaseduringtheimplementationphaseoftheTCFchanges-processes,training,MI,complaintsetc.

Resourceswereidentified,projectteamsmobilised,com-municationprogrammesdevelopedandtheprojectsponsorwould,inmanyinstances,betheCEO.

Theproblem,however, is that TCF cannot simply beimplementedlikeaproject–culturalchangetakesconsid-erablylongerthanmostprojectsandrequiresitsownsetof skills.And themost fundamentaldifferencebetweenprojectmanagementprinciplesandtheprinciplesofculturechange?Aprojecthasaclearenddate.

So, when the project ended (somewhere between sixand 18months) theproject teamsdisappeared, theCEOmovedontosomethingelse(ifindeedtheyhadnotalready

moveon)thenextprojectcamealong,andprioritieschanged.TCFtookabackseatandwasdelegated

downwards.And in even in those organisations

which continued toplace apriority onTCF, the governance model they sub-sequently adoptedwas often itself thereasonwhyTCFwasnottrulyembed-ded.Considerthesetwoscenarios:

Firm A:AseniorsingleTCFchampion,with support from a virtual team of

part-timeTCF“ambassadors”,representingallpartsof thebusiness,andwithoverall

responsibilityforallthingsTCF.Firm B:Acentrallymanagedteamof15full-time

staff,satwithinanOperationalRiskdepartment,respon-sibleforallthingsTCF.

All thingsbeingequal,whichonewouldsuggest thatTCFwastrulyembeddedacrosstheorganisation?

Getting the customer trustItisthuscrucialthatfirmsshouldbereviewingallinternaloperationalprocessesandsupportingdocuments–productmanagement,sales,marketing,andservicing,toensuretheyreflecttheprinciplesofTCF.

I’llleaveyouwithacoupleofthoughts…Theultimatetestiswhatyourcustomersthink.Customer“trust”thatisakeydriverforadvocacy,not

justcustomersatisfaction.

Mr Stephen Rosling is the Co-Founder and Director of TCF Matters, a firm specialising in the audit and implementation of consumer protection regulations. www.tcf-matters.com.

Top tipsSo, what are some of the best practice tips that firms should be employing to demonstrate to themselves, and to their regulator, that the fair treatment of customers is central to the corporate culture? My top tips for making TCF part of the culture:

Review your employee recruitment and selection criteria.

Provide annual staff training and testing on the principles of TCF.

Design a performance management process that includes TCF objectives. Reward the right behaviours.

Develop and maintain a comprehensive employee communication and engagement programme.

Measure the extent to which customers view you as “fair and trustworthy”

Visible and sustained leadership. (Action speak louder than words.)

Identify and deal with customer issues quickly and effectively.

Publish MI that demonstrates all the above.

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