Treating Customers Fairly - the challenge for financial services marketers Tony Katz, Financial Promotions Team, FSA

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<ul><li><p>Treating Customers Fairly - the challenge for financial services marketers Tony Katz, Financial Promotions Team, FSA</p></li><li><p>How consumers feel about financial providers79%76%63%60%59%57%46%They dont reward loyaltySource: BMRB Online - regular newspaper readers who have acquired or renewed home or motor insurance within the last 6 months or acquired or renewed a mortgage, loan or credit card within the last 12 months, 3753The language they use is difficult to understandYou have to change your provider regularly or you end up with a poorer dealTheyre not interested in helping you understand whats best for your needsIts hard to know if youre getting a good dealThey make it so complicated you end up confused You can trust them </p></li><li><p>Principles-based regulationA fantastic opportunity to innovate! Greater responsibility for firms and senior management </p></li><li><p>TCF outcomes1: Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.2: Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.3: Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.4: Where consumers receive advice, the advice is suitable and takes account of their circumstances.5: Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.6: Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.</p></li><li><p> Management must think of itself not as producing products, but as providing customer-creating value satisfactions. It must push this idea..into every nook and cranny of the organisation. It has to do this continuously and with the kind of flair that excites and stimulates the people in it</p><p>Ted Levitt</p></li><li><p>End of tick-box compliance </p></li><li><p>No more silos</p></li><li><p>COBS: high-level requirements for financial promotionsCommunications must be accurate and sufficient for their purposeThey must be presented in a way that is likely to be understood by the average member of the group to whom they are directed Where benefits are discussed, there must be a fair and prominent indication of any relevant risksFirms must not disguise, diminish or obscure important items, statements or warnings</p></li><li><p>Key FeaturesIssues to consider in designing KFDsType sizeAttractiveness of the textClarity of the key messages about cancellingRelevanceRepetitionAmount of process detail (which is better explained elsewhere)Style: use active verbs and positive language; stick to precise and short sentences; avoid the use of abstractions and redundant phrases; and avoid legal terms and bureaucratic language.</p></li><li><p>"Save 150/"You could save 150/"Save up to 150"</p></li><li><p>Savings claimsGood practice:</p><p>price/savings claim representative of likely customer benefit</p><p>clear basis on which such saving is to be achieved</p><p>Poor practice: unclear or hidden explanation of savings claim misleading claim, false customer expectations </p></li><li><p>1954 car advert from State Farm Mutual</p></li><li><p>Internet promotions Good practiceRisk information appears prominently on the first page of the website the customer arrives at and near to the product description. Devices such as fixed risk warnings remain on the screen even when the customer scrolls up and down. The customer is encouraged to think about whether the product is right for them. The risks are repeated further into the application process. Poor practiceThe risk information can be easily overlooked which could also result in the consumer being taken straight to an application form (e.g. by clicking on to a banner advertisement or accepting a cookie). Key information, such as on fees or exclusions are buried within the website or placed in a separate section such as FAQs. </p></li><li><p>Commercial property funds</p></li><li><p>Last wordFewer rules do not mean lower standardsStand-alone complianceCulture is the key to it all</p><p>*People feel very negative about financial product providers, and loyalty is a casualty of that feeling. More than three quarters say there is no reward for loyalty if they stick with a particular company. In fact, nearly two thirds feel that changing provider is actually in their interests. </p><p>They feel that the companies are not interested in helping them find the deal that suits them best. And they find the language used in communication is so hard to understand that they cant be confident in making that judgement for themselves. Fewer than half say that they trust the companies</p><p>There seems to be a vacuum in the market. The fact that it feels to the consumer as if it is all down to me coupled with the perception that many feel a lack of respect for them from the providers, means that people are looking for reassurance and comfort in their transaction. This is a gap that can be filled by strong brand values and personalities. </p><p>All these feelings about the market help to explain and contextualise the responses we had to current newspaper mortgage advertising. </p><p>End of tick-box Compliance</p><p>In the past, in some cases, the detailed rules led to a tick-box approach and formulaic promotions, rather than leading firms to follow the spirit of the rules. </p><p>For example, advertisements we would regularly see in the national press:would include past performance warnings in advertisements which do not refer to the firm's performance; would state warnings that "you may not get back the amount you originally invested", even where the capital is guaranteed; or would automatically include "the value of your investment can fall as well as rise" without considering whether the risk warning is needed in the circumstances, or whether there is a clearer way to explain the particular risks that apply to the product in question.</p><p>These advertisements, while they did not lack the required risk warnings, produced a culture of mechanical- tick-box compliance across firms failing to make the promotion clear, meaningful or persuasive for the consumer. We still see this in promotions.</p><p>Our experience has shown that tick-box compliance does not go far enough to putting the firm in the shoes of the consumer. It does not ensure that the right outcomes are achieved because the focus tends to be with procedures rather than outcomes (ie the outcome of producing a fair, clear and not misleading promotion). </p><p>In the era of principles-based regulation, firms are encouraged to abandon unthinking compliance, to redefine existing processes and make judgement calls on daily basis.The second example is savings claims. </p><p>We expect to see advertisements where the price/savings claim referred to in the promotion is representative of what the target customer is likely to benefit from. There should be no discrepancy between the general impression created by the promotion and the actual experience of the target customer. Consumers should not feel misled by the advertisement.</p><p>We want to encourage firms to create promotions that outline with sufficient clarity the basis on which such savings are to be achieved, with equal prominence to the savings claim. </p><p>We are concerned about promotions that although they set out the basis of the claim, the information is in small print and ,therefore, less likely to be read by the consumer. In such cases, we require immediate remedial action from firms. </p><p>Last year we saw firms move away from using monetary 'savings claims' in their promotions. They prefer to emphasise other benefits instead. For example, we have seen marketing campaigns that focus: Firstly, on percentage discounts offered on premiums for consumers meeting certain requirements. These discounts are often available for consumers who: have a specific number of years no claims discount; buy online; or buy contents and buildings cover together.Secondly, on guarantees to beat consumers' renewal quotes; and/or offer money back. </p><p>Obviously, such claims also raise consumer expectations and firms must ensure that these expectations are being met by the consumers' experience.</p><p>We dont put a number on it. It is for firms to judge the appropriate number for the audience. Should you decide that it is relevant that the audience will be interested in 5% of consumers making a saving of 100, you need to be clear who will get this saving and that it will be only 5%.</p></li></ul>