Fair and square

Just what does Treating Customers Fairly mean? As Jason Woolfe finds, it’s mostly common sense

The FSA’s Treating Customers Fairly (TCF) initiative sounds so simple – so why is there still confusion over what exactly it means? Judging from the blizzard of paperwork it generates, there is still a need to clarify what it’s all about.

The basic idea couldn’t be simpler: financial products should do what they say on the tin, the tin should be labelled fully and clearly, sales and marketing should stick to minimum standards and customers should be made aware of the risks.

But it’s not quite as simple as that: TCF is laid out as a set of principles and key outcomes for customers and many pages of guidance – a search for ‘TCF’ on the Financial Services Authority’s (FSA) website comes up with more than 200 documents.

Nausicaa Delfas, head of the FSA’s TCF project, says: “We are asking firms to put the interest of the customer at the heart of the business, to ensure that the customer is treated fairly throughout all stages of the product lifecycle.”

TCF is set out in terms of responsibilities rather than rules, but the FSA is willing to take disciplinary action. For example, the Carphone Warehouse was fined £245,000 in September over general insurance telesales, and advisers have been fined for failing to ensure staff were adequately trained. The FSA is increasing the pressure on firms by setting a deadline of the end of March to implement the principles.

Assuming the broker is a distributor, he must ensure the customer is well informed, the product is suitable and after-sales service measures up to any expectations raised. If the broker has designed the products, there are extra responsibilities.

One example is how a broker should respond to its customers experiencing very high claims rejection rates from an insurer. The broker should ensure the policy is clearly explained, but if this does not cut the rejection rate, they could choose another insurer.

“We can see that firms might legally be entitled to withhold a claim on the basis of the contract,” says Nausicaa, “but if disclosure requirements have not been made clear to the customer, the broker might conclude that the firm was not treating his customers fairly and choose to sell alternative products.”

This raises another issue – that of expectations. FSA research supports the view that customers and firms can have different expectations of a product and acknowledges that a customer may choose the wrong product or be wrongly satisfied or dissatisfied.

Because of this distinction between fairness and satisfaction, data on customer satisfaction or other customer perceptions cannot be used as evidence of a firm’s fair treatment of its customers.

“Low levels of financial capability means that the customer is not always best placed to judge whether the product really meets their needs,” Nausicaa explains. “TCF is not just about satisfying customers.”

Differing viewpoints
Mike Williams of financial services consultancy Watson Wyatt believes enthusiasm for TCF within the industry is falling. “At the outset, not everybody realised quite how far-reaching TCF really was. They may be waking up to the possibility that there is a lot of work to be done.”

However, Nadya Khan, Compliance Manager at Hiscox, may disagree with Mike. She says the company was reviewing its processes in the light of TCF but she didn’t expect to make major changes.

She says: “The vast majority of it is common sense, putting yourself in the customer’s shoes and treating people as you would like to be treated.” She expects that most Hiscox brokers can implement TCF without a major overhaul, perhaps by undertaking a formal review and taking on the message at board level.

John Hooper, Group Managing Director of broking franchise Coversure, concurs. “All good brokers operate a TCF regime anyway. The difference between now and what we did prior to regulation is that we document procedures that we didn’t document before.”

Nadya says Hiscox has not changed any of the information it supplies to brokers: “We go above and beyond the requirements.”

---

How does it work?

Say a broker designs payment protection insurance to complement its personal loan offering, with three increasing levels of cover. It puts the risks out to a panel of insurers and starts promoting the product through flyers. What responsibilities does it have under TCF?

• The broker designed the product, so has responsibilities such as identifying the target market, but the insurer must deliver the specified cover to the customer
• The broker must consider the impact of its choice of insurer – for example, will it deal efficiently and reliably with the customer?
• The flyers must comply with detailed rules governing financial promotions but the broker is responsible for the sale, so must consider the customer’s ability to claim
• The broker is responsible for providing information during the sales process, such as a policy summary and price statement
• The broker must consider whether the customer may have reasonable expectations of ongoing advice, such as during the claims process
  
  

< previous | next >