The document discusses the concept of 'treating customers fairly' (TCF) in the financial services sector, emphasizing that TCF is distinct from customer satisfaction. It outlines the importance of management commitment, appropriate product offerings, and staff competence in achieving TCF outcomes, which focus on fair customer treatment and transparent communication. The text also highlights various measures firms can adopt to assess and ensure compliance with TCF principles.

1. Treating customers
fairly
Creating a perfect circle
Before considering what measures a firm should adopt to measure its
TCF performance, it is vitally important for firms to realise first that TCF
has nothing to do with customer satisfaction. A satisfied customer may
have been treated most unfairly, while a customer who makes a
complaint may have been treated perfectly fairly.
Lee Werrell
CEI Compliance Limited Tel 0800 689 9 689

2. Treating customers fairly: creating a perfect circle
Since 2008, the Financial Services Authority has expected firms to have in place adequate
management 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 expects
firms to achieve in their dealings with customers. Before considering what measures a firm
should adopt to measure its TCF performance, it is vitally important for firms to realise first
that TCF has nothing to do with customer satisfaction. A satisfied customer may have been
treated most unfairly, while a customer who makes a complaint may have been treated
perfectly fairly.
An objective measure
TCF attempts to provide an objective measure. It takes the customer's demands and needs,
and considers whether the products delivered and the associated services and processes
fairly and reasonably meet those needs. Frankly, the customer's opinion on the matter is
irrelevant. Customer satisfaction is totally subjective. A customer may be perfectly happy
with the product which has been sold, and perfectly oblivious that the product is, for
example, overpriced, contains punitive charging structure, contains exclusions which would
be critical to its effectiveness, cannot be adapted easily to the customer's likely change in
circumstances or can only be cancelled at horrendous penalty rates. Research into the
payment protection insurance market shows that many purchasers were satisfied with their
purchase, but only because they were ignorant of its true cost and limited scope (unless they
make 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 ideal
world, a firm will achieve both.
The first step is to establish that there is no systemic obstacle to achieving TCF. The critical
systemic issue to achieving TCF is the “Tone form the top” or the attitude of senior
managers to the TCF issue. If directors or partners of a firm send the message that TCF is
just the latest FSA mantra, which has to be pandered to with -veiled irritation but must be
applied with only a minimum disruption to business as usual, then the firm will not achieve
TCF. Short-term window dressing may be successfully implemented, but without senior
management 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 firm's
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? This
fundamental is necessary at the strategy setting stage when you decide what target market
or markets are viable for the firm and what skills and resources are available to distribute

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 will
only demonstrate a persistent failure to treat customers fairly. Advisers who do not need
exceptional training can sell simple, generic products to a wide spectrum of more or less
financially literate customers. If a product is complex, then it becomes much more difficult to
be confident that the sales person is equipped to make a cogent assessment of the
customer's 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 the
sales force which are relative to both the products and the customers. A firm should be
prepared to make hard decisions to simplify products, switch product suppliers or withdraw
from selling certain products unless it is convinced that TCF is achievable. Material which
predates the TCF initiative should be reviewed to ensure that it is clearly expressed and
presented, and is consistent with a TCF culture.
Assuming that a firm has got over these hurdles, it has the following means at its disposal to
meet the six TCF outcomes and
to 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. 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 FSA's 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 and
the number and types of products that it sells. Ideally, the frequency of measurement will
also 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 and
are often only discovered post event. The
goal of the TCF process is that patterns of
unacceptable behaviour are identified and
addressed, so that any TCF failure is
exceptional and against the accepted
standards of the firm's normal service. The
firm should also ensure that, where an error
is made, it is promptly and fairly dealt with
and this may sometimes be painful in terms
of cost, management time and past
business reviews to compensate other
previous clients. Leaving the job of
measuring TCF exclusively to the
compliance team is not really acceptable in
today’s world as it is a firm wide standard
and everyone has their part to play. Some
possible encouragement to staff to come up with ideas, not only provides a reward for them
thinking along TCF lines, but also demonstrates a level of understanding that can be built
upon. There is also a lot to be said for senior executives within the business who spend an
amount of time reviewing a file or listening to telephone tapes, as well as paying attention to
MI.
Whatever measures a firm decides to adopt, and this can be a variable decision, MI can and
should evolve with experience. Nothing will be achieved without two further steps. The first is
to ensure that reports and information are being delivered to the correct forum, usually a
board or executive committee. The second is to react to information which gives rise to
concern. 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 and
Decision/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. 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, reducing
required 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
www.ceicompliance.co.uk
This whitepaper was written
by Lee Werrell FInstSMM Chartered MCSI
Cert PFS, founder of CEI Compliance Limited.
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