Customers deserve better FSA tells financial services industry

The study Treating retail customers fairly after the point of sale looked specifically at the standard of customer service provided throughout the lifetime of the product and the on-going relationship between the firm and customer.

Christine Farnish, FSA Consumer Director, said:

After sales services are often the poor cousin to a firms sales strategy. Time and again we see consumers expectations raised at the point of sale only to be dashed when the product fails to adapt to changes in their lifestyle or economic factors. For example, even when it became clear that many customers endowment polices might fail to pay off their mortgages, it still required intervention by the FSA before firms agreed to tell customers about the risk.

Customers deserve better. If the financial services industry is to enjoy their trust it must treat customers fairly throughout the term of the commercial relationship and not just when making the sale.

The study found that traditionally the financial services industry has seen its role in terms of selling products to meet consumer requirements only as they stand at the point of sale. Unrealistic expectations are often the product of badly written information that fails to point out the risks or relevant features of the product in a clear and understandable way. The tendency to focus on the sale ignores the ongoing needs of the customers and subsequent changes in economic conditions.

The regulators role is to benchmark minimum standards designed to protect the consumer. Firms, however, need to go beyond simply meeting these requirements. This means putting in place common sense commercial strategies that deliver good service, the study concludes.

Main findings

The main aspects of current industry practice that can lead to consumers not getting a fair deal include:

• failure to provide relevant information to customers during the life of a product;
• poor standards of complaint handling by some firms;
• marketing practices which can lead to unrealistic consumer expectations;
• the sale of complex, opaque products to consumers where the associated risks are not properly identified;
• persistence of jargon in some product literature; and
• unfair barriers to switching products in some areas.

Planned actions

Actions to tackle the problems identified will include a campaign to replace jargon with plain language and a review of the rules covering financial advertising, which could lead to a firmer stance on misleading advertising.

The FSA will use its powers to clamp down on unfair clauses in contracts and policy documents and will conduct a policy review of the sale of complex products.

The introduction of new standards for complaints handling, together with a policy review of the information provided to customers after they have bought a product is also planned.

Notes for editors

1. The study is the result of a 9 month project as part of the FSA's 'New Regulator for the New Millennium' work programme. The study reviewed existing research in this area and found, for example, that:
   • 53% of consumers find charges for investment products hard to understand;
   • nearly 1 in 4 consumers say they have a current problem with a financial services firm; and
   • firms could do more to minimise losses suffered customers due to early policy lapses of long term products by explaining the consequences of early lapse both when the customer buys the product and at the point of lapse.

2. The FSA would welcome views from the industry and consumer groups on this discussion paper Treating retail customers fairly after the point of sale by 28 September.

3. The FSA regulates the financial services industry and has four objectives under the Financial Services and Markets Act 2000: maintaining market confidence; promoting public understanding of the financial system; the protection of consumers; and fighting financial crime.

4. The FSA aims to maintain efficient, orderly and clean financial markets and help retail consumers achieve a fair deal.