TCF creating a_perfect_circle


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The FSA TCF initiative has been with the UK financial services world for many years and there are still areas that firms are missing about the whole idea. This guide helps identify the myths and provide sound steps and ideas for any firm to adopt and use in their strategy.

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TCF creating a_perfect_circle

  1. 1. Treating customers fairly Creating a perfect circleBefore considering what measures a firm should adopt to measure itsTCF performance, it is vitally important for firms to realise first that TCFhas nothing to do with customer satisfaction. A satisfied customer mayhave been treated most unfairly, while a customer who makes acomplaint may have been treated perfectly fairly. Lee Werrell CEI Compliance Limited Tel 0800 689 9 689
  2. 2. Treating customers fairly: creating a perfect circleSince 2008, the Financial Services Authority has expected firms to have in place adequatemanagement information which will indicate whether the firm is treating its customers fairly.Firms must be able to demonstrate that they are consistently treating their customers fairly."Treating customers fairly" is used to summarise the six outcomes which the FSA expectsfirms to achieve in their dealings with customers. Before considering what measures a firmshould adopt to measure its TCF performance, it is vitally important for firms to realise firstthat TCF has nothing to do with customer satisfaction. A satisfied customer may have beentreated most unfairly, while a customer who makes a complaint may have been treatedperfectly fairly.An objective measureTCF attempts to provide an objective measure. It takes the customers demands and needs,and considers whether the products delivered and the associated services and processesfairly and reasonably meet those needs. Frankly, the customers opinion on the matter isirrelevant. Customer satisfaction is totally subjective. A customer may be perfectly happywith the product which has been sold, and perfectly oblivious that the product is, forexample, overpriced, contains punitive charging structure, contains exclusions which wouldbe critical to its effectiveness, cannot be adapted easily to the customers likely change incircumstances or can only be cancelled at horrendous penalty rates. Research into thepayment protection insurance market shows that many purchasers were satisfied with theirpurchase, but only because they were ignorant of its true cost and limited scope (unless theymake a claim). Of course, both fair treatment and satisfaction may occur together,individually or be absent together, but the two elements should not be confused. In an idealworld, a firm will achieve both.The first step is to establish that there is no systemic obstacle to achieving TCF. The criticalsystemic issue to achieving TCF is the “Tone form the top” or the attitude of seniormanagers to the TCF issue. If directors or partners of a firm send the message that TCF isjust the latest FSA mantra, which has to be pandered to with -veiled irritation but must beapplied with only a minimum disruption to business as usual, then the firm will not achieveTCF. Short-term window dressing may be successfully implemented, but without seniormanagement leadership and direction demanding that customers have to be treated fairly,nothing of any substance will be achieved. The firm may escape regulatory detection for some unquantifiable period, but it will be living on borrowed time. Another typical systemic issue could be the firms remuneration policy. Rewards based exclusively on volume, holidays, vouchers, first past the post etc. will not foster TCF. Firms and their advisers have spent a lot of time on the composition and frequency of the particular measures because of the focus on MI to measure TCF. Firms should not, however, overlook the fundamentals to consider whether it will be practicable to implement TCF, namely: what products are being offered; to whom are they being offered; and how are they being sold? Thisfundamental is necessary at the strategy setting stage when you decide what target marketor markets are viable for the firm and what skills and resources are available to distribute
  3. 3. these products. Unless there is a match between the scope and complexity of the products,the type of customer and the quality and competence of the sales staff, then the best MI willonly demonstrate a persistent failure to treat customers fairly. Advisers who do not needexceptional training can sell simple, generic products to a wide spectrum of more or lessfinancially literate customers. If a product is complex, then it becomes much more difficult tobe confident that the sales person is equipped to make a cogent assessment of thecustomers demands and needs, and to give a clear explanation to every level of customer.The second step is to consider: the products; the customer types; and the competence of thesales force which are relative to both the products and the customers. A firm should beprepared to make hard decisions to simplify products, switch product suppliers or withdrawfrom selling certain products unless it is convinced that TCF is achievable. Material whichpredates the TCF initiative should be reviewed to ensure that it is clearly expressed andpresented, and is consistent with a TCF culture.Assuming that a firm has got over these hurdles, it has the following means at its disposal tomeet the six TCF outcomes andto demonstrate compliance: a. Mission or vision statement — much derided, but of great value in sending a message within a firm if kept simple and promulgated with conviction by senior management. b. Conflicts of interest policy — make sure it includes appropriate guidance where TCF may be threatened. c. Consider which and how many customers are buying (or not buying) which products. d. Assessment of staff competence — consider the adequacy of the induction process, match capability and experience to the products being sold and the type of customer, maintain or upgrade staff skills, and monitor performance. e. Resource assessments — the sales team and the compliance teams must be able to do their respective jobs and maintain clear communication between them. f. Process review — a step-by-step assessment of the selling and after-sales process, cross referenced to the handbooks to ensure that eligibility, suitability and aftercare are addressed for each product. g. Sales volumes, profitability, lapse and cancellation rates — all useful to consider unusual patterns of particular products or branches and to put any shortfalls in context. h. File monitoring — a necessary part of but not sufficiently encompassing tool. i. Telephone call recording — another necessary but not sufficient tool.
  4. 4. j. Complaints review - useful to measure client care and capture recurring issues. k. Cancellations - common reasons for lapses and NTUs need to be addressed for possible weaknesses within the selling process. l. If General Insurance is involved, then claims history (including rejections) provide trend data or flag up hotspots in product design or delivery. m. Mystery shopping — useful for larger firms, costly, but one of the FSAs favourite pastimes. n. Consumer research – could be a simple online questionnaire or a collaborative survey with a local university on an ad-hoc/annual basis with crafted and agreed questions.In reality, a firm should choose a selection of these measures depending upon its size andthe number and types of products that it sells. Ideally, the frequency of measurement willalso vary. Like most risks, it is extremely unlikely that a firm will never have any TCF issues.Whenever people are involved in any process, mistakes will be made from time to time andare often only discovered post event. Thegoal of the TCF process is that patterns ofunacceptable behaviour are identified andaddressed, so that any TCF failure isexceptional and against the acceptedstandards of the firms normal service. Thefirm should also ensure that, where an erroris made, it is promptly and fairly dealt withand this may sometimes be painful in termsof cost, management time and pastbusiness reviews to compensate otherprevious clients. Leaving the job ofmeasuring TCF exclusively to thecompliance team is not really acceptable intoday’s world as it is a firm wide standardand everyone has their part to play. Somepossible encouragement to staff to come up with ideas, not only provides a reward for themthinking along TCF lines, but also demonstrates a level of understanding that can be builtupon. There is also a lot to be said for senior executives within the business who spend anamount of time reviewing a file or listening to telephone tapes, as well as paying attention toMI.Whatever measures a firm decides to adopt, and this can be a variable decision, MI can andshould evolve with experience. Nothing will be achieved without two further steps. The first isto ensure that reports and information are being delivered to the correct forum, usually aboard or executive committee. The second is to react to information which gives rise toconcern. MI is not an end in itself, only a means to establish whether TCF is being achieved.Firms must establish a pattern of Identification, Assessment, Remediation andDecision/Acting: a virtuous circle of TCF risk management.Treating customers fairly — the six outcomes 1. Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.
  5. 5. 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 both of an acceptable standard and is also as they have been led to expect. 6. Consumers do not face unreasonable post-sale barriers that firms have imposed to change product, switch provider, submit a claim or make a complaint. Companies we have been involved with in the last 11 years; CEI Compliance can help provide a full compliance support service, reducingrequired management time, ensuring all areas are up to date and working for your firm’s long term benefit. Call 0800 689 9 689 today or go online at This whitepaper was written by Lee Werrell FInstSMM Chartered MCSI Cert PFS, founder of CEI Compliance Limited. Avoid S166 Skilled Persons Reports – download our free guide here