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Customer Focus              Treating Customers Fairly –              Not a simple task!              Mr Stephen Rosling of...
Customer Focus                                                                         Top tips               So, what are...
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Article for Asia Insurance Review

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This article 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,
the author 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.

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Article for Asia Insurance Review

  1. 1. Customer Focus Treating Customers Fairly – Not a simple task! 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. L et’s start with a little history…. • Or maybe they thought that regulation alone was enough Back in the summer of 2001, the UK Financial to change the culture of organisations. Services Authority (FSA) issued a discussion paper en- • Or was it all of the above? titled “Treating customers fairly after the point of sale.” The catalyst had been the new Financial Services and Markets Whatever the reason, it is clear that change was, and Act and the key point of discussion was how to achieve remains, needed. Customers around the globe would tes- the objective of “protecting consumers.” tify to this – even those that have not been mis-treated by Over the next few years, the FSA entered into various financial services firms. And, rightly or wrongly, (or fairly or unfairly), a significant discussions and consultations with industry bodies, con- proportion of people continue to put insurance, banks, bro- sumer organisations and financial services firms. In fact, kers, and pension companies all under the same umbrella. the FSA published 18 discussion documents over the course This lack of trust and differentiation was highlighted of seven years up to the end of 2008 - this did not include in the 2012 Edelman Global Trust Barometer where banks case studies, guidance publications, cluster reports, speeches and financial services remain firmly rooted at the bottom and press releases. So there was no excuse that it would be on 47% and 45% respectively (both results were worse than a surprise. By the end of 2008 firms were expected to have those in 2011). reporting mechanisms in place that would provide evidence So, we are left with some key questions: that their customers were being treated fairly. • What do insurance companies need to do to create, build, (and restore?), trust with their customers? Why were the firms not ready? • How will their customers know what changes they have However, over the following two years, the FSA fined 23 made? organisations approximately GBP14.5 million (US$23.2 mil- lion) as a direct result of not treating customers fairly. (There To help understand the answer to these questions, it were also several bans and public censures). Interestingly, is worth trying to understand where the FSA and banks the list of 23 did not include a single bank. went wrong and, (if only by association), where the rest of So, after seven years of consultation and planning, why financial services went wrong. I have picked three key areas were firms not ready, and not able to comply with the new to discuss, however, there are others. requirements? Was it because: • Firms and the industry did not understand what was Controls, controls, controls meant by “fairness” (and how this differed from satisfac- Consciously or not, it seems that many organisations de- tion). voted significant resources and time into developing TCF • The FSA did not understand what they meant by “treat- related processes and controls, at the expense of enough ing customers fairly”. time being spent on behaviours. • The industry did not think the FSA would enforce TCF. 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. 92 s www.asiainsurancereview.com s January 2013CustomersFocus-TCF.indd 92 20/12/2012 4:34:06 PM
  2. 2. Customer Focus Top tips So, 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: Design a performance Review your employee Provide annual staff management process that recruitment and training and testing on includes TCF objectives. selection criteria. the principles of TCF. Reward the right behaviours. Develop and maintain a comprehensive Measure the extent to employee communication and which customers view you engagement programme. as “fair and trustworthy” Visible and sustained Identify and deal with Publish MI that leadership. (Action speak customer issues quickly demonstrates all louder than words.) and effectively. the above. • And lastly, but most importantly, issues impacting on Resources were identified, project teams mobilised, com- customers were not progressed with appropriate pace. munication programmes developed and the project sponsor The key point is that TCF was simply being seen and would, in many instances, be the CEO. managed as a reporting “tick box” exercise. The focus (con- The problem, however, is that TCF cannot simply be scious or otherwise) was on the process, not the content implemented like a project – cultural change takes consid- and not on the customer. erably longer than most projects and requires its own set of skills. And the most fundamental difference between What’s the difference between customer project management principles and the principles of culture satisfaction and fairness? change? A project has a clear end date. This, unfortunately, is not a joke question! This issue con- So, when the project ended (somewhere between six sumed vast amounts of time and discussion with no real and 18 months) the project teams disappeared, the CEO definitive conclusion. And that’s because fairness is con- moved onto something else (if indeed they had not already siderably more difficult to define (and then measure) move on) the next project came along, and priorities than satisfaction. changed. TCF took a back seat and was delegated What the FSA were unable to provide, but downwards. what the industry really wanted, was a And in even in those organisations definitive meaning of fairness. And this which continued to place a priority on is where it got even more difficult – what TCF, the governance model they sub- you think is fair may not be the same sequently adopted was often itself the as what the customer thinks. reason why TCF was not truly embed- It was also clear that many firms ded. Consider these two scenarios: put greater emphasis and priority on Firm A: A senior single TCF champion, customer satisfaction surveys. These with support from a virtual team of often painted a very positive picture, but part-time TCF “ambassadors”, representing given the level of fines being raised it would all parts of the business, and with overall not be unreasonable to think twice about an responsibility for all things TCF. organisation that, on the one hand speaks very pub- Firm B: A centrally managed team of 15 full-time licly about the importance of customer care, yet at the same staff, sat within an Operational Risk department, respon- time is fined and penalised for not treating customers fairly. sible for all things TCF. In fact, there has been a very recent example of this All things being equal, which one would suggest that behaviour. In September this year, “Discover Bank” was TCF was truly embedded across the organisation? ordered to refund $200 million to 3.5 million customers for using “deceptive marketing tactics.” A quick look at the Getting the customer trust website, however, and you’ll find this message: “Taking care It is thus crucial that firms should be reviewing all internal of customers is at the heart of everything we do.” operational processes and supporting documents –product management, sales, marketing, and servicing, to ensure they TCF is not just another project reflect the principles of TCF. It is well established and accepted that the CEO of an I’ll leave you with a couple of thoughts… organisation sets the culture and tone of their business, The ultimate test is what your customers think. as well as the strategic direction and associated priorities. Customer “trust” that is a key driver for advocacy, not If we were to accept that the principles of TCF required just customer satisfaction. a cultural shift, then it follows that in order to achieve such a change, the CEO would need to play a key role. This was Mr Stephen Rosling is the Co-Founder and Director of TCF Matters, a undoubtedly the case during the implementation phase of firm specialising in the audit and implementation of consumer protection the TCF changes - processes, training, MI, complaints etc. regulations. www.tcf-matters.com. www.asiainsurancereview.com s January 2013 s 93CustomersFocus-TCF.indd 93 20/12/2012 4:34:14 PM

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