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Industry in depth
Taking the next step
30 June 2007
Bill Warren looks at the next moves for Treating Customers Fairly
The question “Treating customers fairly (TCF) – where now?” really breaks down into three parts. First, we need to remember what has already taken place, next we need to take a look at what the FSA has said will happen next, and then we need to decide what we should be doing to deliver TCF consistently to our customers in future.
A good starting point to review the recent history of the TCF initiative is the FSA’s July 2006 paper entitled “TCF – Towards fair outcomes for consumers”. In this document we find the whole essence of TCF distilled into six consumer outcomes. By now, we should all be familiar with these six TCF outcomes, but it’s worth briefly summarising them as follows.
Consumers are confident of finding a TCF culture within financial services firms; products and services are designed for specific target consumer groups; clear information is provided before, during and after the sale; advice is suitable; the products and services are what consumers have been led to expect; and there are no unreasonable post sale barriers to receiving the original product benefits.
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The July 2006 publication also set out the four stages by which firms should have progressed to the point where they are satisfactorily delivering the six outcomes. These are: awareness, strategy and planning, implementation, and embedding. Since July 06 the first of these two stages should have been accomplished, with firms being aware of the TCF issue, and having made progress with gap analyses including plans to plug the gaps. A March 31 2007 deadline was set for firms to be “implementing necessary change in a substantial part of their business” in order to achieve the six outcomes.
Fast forwarding to May 2007, at this point the FSA published a progress report on TCF that concentrates more on the implementing and embedding stages. “Implementing” is explained as allocating resources and responsibilities; developing plans and processes; and creating capability, and “embedding” is defined as following up on implementation; continuous monitoring of TCF performance; and commitment to maintaining standards in the future. As has been widely reported, out of a sample of 659 small directly authorised firms only 41% were considered to have met the deadline, with 52% of financial advisers and 45% of general insurance advisers meeting the deadline – but only 22% of small mortgage advisers.
Annex 1 of the progress report sets out the key cultural drivers within organisations that the FSA believes are likely to have a significant influence on the behaviours of management and staff and therefore on consumer outcomes. If you have not come across the concept of “key cultural drivers” before, then take a note of them for the future, as I believe we are going to hear a lot more about them as the TCF initiative rolls on. The key cultural drivers are set out in familiar FSA fashion as opposing examples of good and bad practice – in this case termed “indicators” and “contra indicators”. In the suitable example for small firms, there are six key cultural drivers: leadership; business planning; controls; internal communications; recruitment, training and competence; and reward.
Taking these in turn, the indicators for “leadership” are that managers are able to articulate what TCF means for their firm and that this principle is central to the behaviour and values of the firm. Against “business planning”, the indicator is that when management make key business decisions, the impacts on TCF are always assessed, and for “controls” the indicator is that management ensures that day to day activity is monitored to assess whether TCF is being consistently applied.
The indicator for “internal communication” is that management gives out clear messages to staff and can demonstrate that these messages have been understood. This is followed by recruitment and training, where the indicators are that positive behaviours and attitude towards TCF are key criteria in the selection of staff, and that proof can be produced of effective training and maintenance of staff behaviours with regard to delivery of the TCF consumer outcomes. Finally, under “reward”, the TCF indicator is that the reward structure is transparent and reflects quality rather than quantity.
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Regarding timings for follow up work on TCF, the FSA has set a new deadline of December 2008, by which time all firms will be “expected to demonstrate to themselves and to us [ie, the FSA] that they are consistently treating their customers fairly and . . . show that they are delivering, in particular, the six TCF consumer outcomes.” Take note of that key word “demonstrate”, because I will return to it later.
Given that, according to the FSA, 78% of small mortgage advisers were falling short of the required standard for TCF at 31 March this year, there is a lot of ground to make up by the 31 December deadline. The good news is that there is now a real focus by the regulator on communicating – particularly to small firms – what TCF is and what they must do about it. In May this year, the FSA’s TCF web pages for small firms were updated to include the results of the progress report and they now contain a solid body of information designed to help smaller firms achieve satisfactory levels of TCF.
This web-based TCF information can be found in the Small Firms section of the FSA site, under “general information”. There are five sub sections: What is fairness?; What you need to do; Progress against the 31 March deadline; Next steps; and Help available. Under the first of these, TCF is explained as not just achieving customer satisfaction, but covering every aspect of the business including (among others): training to ensure quality of advice; providing clear and easy-to-understand customer information; ensuring customers get the right advice and product; and putting things right if they go wrong.
Under “What you need to do” there are three key issues. These are, first, firms having appropriate processes in place to satisfy themselves that they are delivering TCF – including management information on advice given, products sold, and complaints. Next, senior management must be able to describe how TCF fits into the business and how behaviour within the firm takes account of the needs, acceptance of risk, level of understanding and rights of their customers. Thirdly, firms need to have investigated the gaps in delivering TCF in their business, and to aid this process there is a link to the FSA’s TCF Self Assessment Tool. This is a set of searching questions that firms need to address about their own way of dealing with customers and running their business under the headings of: management responsibilities, strategy and reporting; sales and marketing; and after sales customer care.
The “31 March deadline findings” section summarises the May 2007 progress report and reminds small firms about the main issues identified by the survey, which are: the insufficient monitoring of advice to make sure it is suitable; inadequate complaint handling procedures; and lack of adequate management information on advice given, products sold and complaints. There are also links through to examples of good and poor TCF practice. The “Next steps” section sets out timetables and offers links to roadshow details and booking facilities, and the “Help available” section gives access to full reports and discussion papers on TCF already published, including sections on the quality of advice work published in January 2007
If I were asked to summarise in three words the most important thing for small mortgage and GI firms to concentrate on to meet the December 31 deadline, I would paraphrase a much quoted piece of political rhetoric and say “evidence, evidence and evidence”. The regulator is very careful not to make rules about the sort of records that must be kept, insisting that firms must have in place TCF systems that are appropriate to their own business model. However, any mortgage and GI firm that already has compliant advice, sales, customer follow up, complaints, and promotions processes in place should already be generating a large volume of documentation, so TCF evidence should be easy enough to produce.
Perhaps the one vital step still needed is to make the connection between the day to day processes/records and the six TCF outcomes. It would do no harm to take another look at the TCF self assessment tool (or even a first look, for some of those firms that did not make the grade at 31 March) and work out which parts of your firm’s documentation can be produced as evidence to answer the 23 questions. If there are any for which no documentation can be found – it’s high time to start plugging those gaps.
Whats the fuss about? Paul Holden, sales director, MortgageStream Case Management Software
Treating Customers Fairly? I sometimes wonder what all the fuss is about, after all haven’t we all been treating our customers fairly for years? Well, I know there have been notable exceptions, however, we have had mandatory professional qualification, followed by self regulation and now full statutory regulation, so most of the miscreants have left, or been binned from our industry.
So from a Broker perspective, do we really need to make many changes in order to embrace the principles of TCF? NO and YES! Read on….. NO in that most Brokers have the principles of TCF embedded in their mind due to the fact that they operate in a service and principles based business environment, admittedly they will be some that may require a few small enhancements to include all of the required provisions; and yet YES, in that what Brokers have historically been very poor at recording all that they have done for the client in the process of advising on a mortgage and then placing that mortgage with a lender and processing to offer and completion.
Allow me to elaborate on this, the rule books tell us that it is not good enough just to do a great job for your customers, but it is absolutely essential that we document, record and log every single action; and yes I really do mean every action, in order to prove an audit trail of your actions. Why must we do this? There are two reasons, firstly because; in life despite our best efforts from time to time bad stuff still happens and clients are getting more and more “savvy”. If they can offload blame onto the Broker, believe me some will. By having an audit trail, you protect yourself from this. And two; because the Regulator says so! If the FSA find that you are not recording your actions, they will warn you and if they consider that you do not have adequate system and controls in place then they may even fine you if you don’t take remedial action.
So to avoid all this unpleasantness, I whole heartedly recommend that Brokerages prepare themselves comprehensively by 1) embracing the principles of TCF after all they are great business practice for running a successful and sustainable enterprise and 2) now that we are over the emotional hurdle of having to make changes, seek out the simplest, most cost effect way to apply the day to day practices of treating your customers fairly and being able to prove to anyone that you have done so. The most straight forward way to do this is to let technology do the work for you.
You will need to invest in a client management system that keeps records of your clients, their contact details, their mortgages, their policies their finances, and every other facet of their lives. This platform should be capable of exchanging data in two directions with any and all of the Mortgage, Life and General Insurance sourcing portals. Your system must include the ability to create and store documents, scanned images, e-mails sent and received, log and record phone calls made and received as well as sending SMS text messages to be able to keep your customers informed as to the status of their mortgage application. Your set up must have the ability to add files notes, outstanding items and should include a diary system with automatic workflow to remind you and your staff to do the right thing at the right time, every time.
Your business needs to demonstrate that the advisers have given advice on life and income protection, plus cover in the event of serious illness or disability. I know that Brokers do these things most of the time, however, your system needs to remind you to ask the question, and prompt you to record the answers. The ultimate reminder is that a client is coming up for review and needs contacting for a financial check up from the neck up, so get your systems in place, be smart, efficient and compliant and beat the competition
No time like the present-Ian Graham, head of complaince at Platform
Research conducted by Platform recently showed almost half - 48 per cent - of the intermediaries we surveyed had no knowledge of the FSA’s Treating Customers Fairly (TCF) initiative. This made alarming reading.
We questioned some 200 brokers to find out both their awareness of TCF and whether more support from lenders would help them achieve compliance. It was found that 39 per cent felt lenders should be doing more, while only 13 per cent said they were happy with the existing levels of guidance from lenders.
The message to those intermediaries who are oblivious to TCF needs to be clear. It’s time to wake up and familiarise yourself with what is required.
The regulator is well aware that some small firms are struggling to get to grips with TCF - in its own research it found only one in five were sufficiently knowledgeable. And so, it is good news it has moved the deadline for TCF implementation from this March to the end of December 2008.
The FSA is adopting a carrot and stick approach and on the one hand says it will expand its range of TCF online tools and hold regional workshops to help brokers. On the other, it has issued a warning and said those who fail to engage face sanctions - namely enforcement action.
At the Mortgage Expo in Manchester, Dominic Clark, the FSA’s manager of small firms reassured that there was not necessarily a crisis – only that too many small firms did not keep adequate records showing they were treating customers fairly.
Poor record keeping can be rectified with relative ease, but more practical help is undoubtedly needed.
The role of lenders in assisting their intermediary partners is an important one. Historically, lenders have been well placed to provide training and TCF is an ideal opportunity to provide worthwhile support.
One way a number of lenders, which include Platform, are offering this is through the TCF Lender Forum, which is run by Frank Eve Consulting. This provides a comprehensive website – www.tcfinfo.co.uk – aimed purely at intermediaries.
This is probably one of the best ports of call, since it supplies all the basics together with guidance on TCF planning and training, plus specific areas on complaint handling, financial promotion and collating TCF management information. There is news, checklists and material can also be downloaded from the site with the intermediary’s brand which is ideal for staff training.
The aim is to be as practical as possible – for example, there are also case studies showing how to address possible conflict between TCF and lending criteria along with solutions.
The fact the deadline has been extended is no excuse to put off tackling TCF. It is understandable that some intermediaries see this as yet another regulatory hoop to jump through, rather than in terms of being positive for clients and their business. Ignoring TCF and how it needs to be embedded into a firm is a highly risky strategy, which could have serious repercussions. This is the ideal time to find out more, take action and show the regulator your firm is compliant – putting it off now simply means storing up problems for tomorrow.
Building relationships - Simon Astley, senior consultant at Bankside
With only 2 in 5 small mortgage advisers making satisfactory progress towards implementing “Treating Customers Fairly” (TCF) by the FSA’s March deadline and the regulator threatening tough penalties for those still failing to embrace TCF by the end of 2008, this is a front-of-mind issue. However, with TCF being applied as a general principle, rather than a set of hard and fast rules, many advisers are questioning whether they are doing enough. Put on top of that the array of IT systems purporting to address TCF and it is hardly surprising that there is huge confusion in the marketplace.
Although technology can’t replace personal relationships, it can take the pain out of compliance by speeding up processes. There are a number of technologies that particularly enable TCF. Workflow technology can be used to automate and standardise previously manual processes, whilst document management tools remove paper-based processes, reducing human error and costs. Combine these with intelligent service prompts and pre-formatted documentation and advisers can ensure that customer communications are clear and consistent.
With the onus now on the adviser to demonstrate that appropriate decisions regarding financial services have been made, equally important is the ability to produce documented audit trails detailing how and why certain products were sold. Implemented well, business intelligence tools can interrogate back office systems for transactional information to explain why a particular customer was sold a particular product.
Technology can also ensure that advisers do not sell unsuitable products to their customers. For example, changing personal circumstances might preclude a client from obtaining a further advance from their existing lender. Moving the entire mortgage to an alternative lender might not be the best advice; taking redemption penalties into account, it might be more appropriate to seek a secured loan. Only with a combined sourcing system can intermediaries advise regarding the apposite choice.
By determining borrowers' attitude to credit and ability to manage debt, sophisticated affordability calculation systems can ensure that advisers provide customers with mortgages they can afford. Such risk-based pricing probably treats customers as fairly as you can as it focuses only on measures of credit-worthiness. However, consumers don't understand risk-based pricing, and neither do customer service staff. When customers are charged more than the “typical APR”, they should be given clear written reasons as to why. Again, smart technology at the point of sale can ensure compliant processes and documentation.
So how does the smaller adviser get access to quality “TCF-compliant” software at an affordable cost? One available route is“Software as a Service” or “on-demand” software, where the application is hosted remotely and accessed via the internet, rather than installed in-house, and charged for on a monthly rate rather than through a big up-front licence. The technology can be accessed both in the office and “on the road”. This not only ensures affordable best practice and processing efficiency but also allows intermediaries to maintain their identity as well as improving customer service. For technology’s role, surely, is to free up the advisers’ time so they can concentrate on building relationships with new and existing customers.