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?
Of course, this doesn’t mean that new customers should be treated the same as existing, but when strategic decisions are made, are the effects of those decisions considered for all customer groups?
The FCA found, in its March 2016 review, that the most successful firms “segment their business lines between open and closed-book business to provide a more focused strategic direction for each”.
3. Do your governance arrangements allow you to test and challenge the decisions made in relation to existing and new customers with equal weight?
According to the FCA: "The culture of a firm plays a key role in shaping the outcomes experienced by closed-book customers.
"Some firms are taking action for the benefit of these customers, while others are only delivering what they are contractually obliged to do, regardless of the outcome for the customer."
Is your firm able to model the effects of strategic decisions on both open and closed-book customers?
Understanding the differing experiences and needs of customers in these two segments can help you balance customer protection for both while retaining a high level of commerciality.
It can also allow you to evidence your consideration of the experiences of new and old customers to the regulator.
4. Do you review your historic products on a regular basis to ensure that they continue to deliver good customer outcomes?
Firms whose senior executives ‘take the temperature’ of their historic products on a regular basis using a proportionate sampling methodology can assess the performance of their closed-book products and gain assurance and evidence that they are still working for customers.
