Treating customers fairly is a well-known phrase in financial services, but do all firms know how to implement TCF for not just new clients, but also long-standing customers?
In March 2016, the financial services regulator, the FCA, published its Thematic Review 16/2: Fair treatment of long-standing customers in the life insurance sector.
According to the FCA, the treatment of long-standing customers in closed funds was exceptionally important.
The review stated: "We consider that a key driver of how a firm treats its closed-book customers is how central the customer is to the business.
"Firms who had customers at the heart of their businesses were more likely to assess the outcome the customer was receiving and to take steps to address the driver behind any poor outcome identified, including when the driver was within the product’s contractual terms and conditions (T&Cs).
"Conversely, firms that did not have the customer at the heart of their businesses generally relied on strict compliance with contractual T&Cs which they felt would automatically result in fair outcomes for their customers, without taking any other action to ensure fair outcomes.
"These firms had, in some cases, not identified the poor outcomes that we found as part of this review.
"In some other cases firms had been aware of poor outcomes but had taken no action because in their view, the customer had signed up to the T&Cs many years ago and the firm was entitled to apply the term or condition regardless of the resulting outcome."
Although most of the firms were found to be operating along best practice, the 116-page Thematic Review also indicated that some firms were potentially falling short of their obligations to customers of historic or closed-book products.
The review examined the areas of strategy, governance and oversight, remuneration, reward and performance management processes.
Some of the inherent issues uncovered included:
- The FCA found little reference to closed-book customers in the majority of firms’ strategies, as they tended to focus on new sales, distribution channels and reducing business cost.
- There was little evidence of product reviews taking place in firms to assess how they were delivering outcomes – good or bad – for long-standing customers.
- Many firms placed an over reliance on the terms and conditions when determining their obligations to customers.
- The theme of poor customer communications was a key finding of the review, including insufficient frequency of communications and incomplete and insufficient information being provided at key events in the product life cycle.
- Some firms did not give unit-linked fund performance sufficient thought.
Exit fees and paid up charges generally have a negative effect on the value of funds, and were not always provisioned for or considered when it comes to offering customers value for money.
Putting it into practice
These findings have caused firms to question whether their treatment of long-standing customers is sufficient both from a firm and a consumer protection point of view.
Here, we examine ten questions firms should consider when reviewing their current stance.
1. Do you value existing and new customers in the same way?
Different treatment of customers based on how long they have been with a firm risks delivering different outcomes.
The challenge from the regulator will be whether such different treatment can be justified – inherently, the FCA feels it may not be right to create differing classes of customers.
2. Do you think about existing and new customers when considering strategic decisions?
Is it fair that new customers are given precedence when it comes to strategic decisions? Is it a safe approach in terms of protecting your firm?