Here are six ways in which financial firms and advisers can focus better on clients
The language of financial advisers, investment managers, banks and brokers has altered significantly. They no longer speak about how big they are, the size of assets they manage, or the money they have mobilised. Instead, they try to impress upon anyone who cares to listen that they are focused on the customer. They speak about customer needs, suitability of products, simple products that can be understood, and about financial planning. While good intention is a great start, I suspect we have some distance to travel before we see actual change on the ground.
The Financial Services Authority (FSA) in the UK brought about a detailed regulation for retail distribution of financial products in 2008. Treating customers fairly (TCF) (http:// www.fsa.gov.uk/doing/regulated/tcf) is at the core of this regulation. There are six outcomes listed under TCF, which provide a good framework to see what we are doing in India and how much more needs to be done.
First, customers need to know that they are dealing with firms that have a corporate culture of treating customers fairly. When firms employ poorly qualified relationship managers, whose conversations are primarily oriented towards selling, customers see a sales culture. We need mandatory, basic qualification, highquality communication, and knowledgebased customer interaction to achieve this change. Second, products and services should be designed to meet customer needs and should be targeted accordingly. It is common for the products that offer higher incentives to find their way into the white list of offering for the customer. The latter have to know how the product or service meets their needs. They should insist that the positioning of the product is not based on its performance alone, but is aligned to how it works for them. We need mandatory processes that ensure compliance and impose penalties.
Third, customers should receive clear and reliable information before, during and after the point of sale. Elaborate regulation on information disclosure in India has led to lengthy and verbose offer documents and agreements. Retail distributors depend mostly on communication material provided by producers. We do not have research that tells us how information is perceived, understood and used by customers. Formal processes should be in place to incorporate this research into regulatory formats and market practices for information disclosure.
Fourth, when customers receive advice, it should be suitable and take into account their specific circumstances. A bank relationship manager selling a credit card or home loan may rely on internal computations for a customer’s credit limits. However, the actual amount of loan that the customer can reasonably service might require more inputs on income, existing liabilities and assets. It takes a wellqualified, knowledgeable and informed adviser to play this role.
Fifth, customers should be provided with products that perform as they have been led to expect. It is easy to sell on the basis of false promises; more so, if accountability for untruth is absent. It is tough to tell the customer that the fund being sold might underperform its benchmark; or that the insurance policy might deliver only in the long run; or that the annuity might provide a negative return after adjusting for inflation. However, fairness towards the customer requires building the right expectations. Assurances about return are unethical, even if they are easily understood and persistently sought by customers.
Sixth, customers should not face unreasonable post-sale barriers to change the service providers, service a claim or make a complaint. The sum total of all lapses in the five practices listed above manifest in a large number of customers in the Indian markets facing severe postsales barriers. Many are stuck with products and services that they are dissatisfied with, but are unable to get rid of. Customers find that complaints are not redressed in a reasonable time frame; claims are turned off citing clauses and provisions that were not highlighted during the sales process; and service providers make it tough and expensive for customers to switch.
What does it take to ensure that we treat customers fairly? We need a regulatory framework, which includes everyone who sells a financial product or service to retail customer. What are the problems we have? Intellectual capital to create such a framework is limited; multiple regulators in the financial market are unwilling to come together; vested interests, including that of the government, come in the way of disbanding undesirable practices; and setting a high standard for the business is seen as expensive, inhibiting and restrictive. Hence, we are unable to move ahead from anguish, activism and hype about mis-selling in financial services to cohesive and meaningful action.
Courtesy:
Uma Shashikant
—The author is Managing Director, Centre for Investment Education and Learning, and can be reached at uma.shashikant@ciel.co.in
http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=TOINEW&BaseHref=TOIM/2013/01/14&PageLabel=18&EntityId=Ar01801&ViewMode=HTML
The language of financial advisers, investment managers, banks and brokers has altered significantly. They no longer speak about how big they are, the size of assets they manage, or the money they have mobilised. Instead, they try to impress upon anyone who cares to listen that they are focused on the customer. They speak about customer needs, suitability of products, simple products that can be understood, and about financial planning. While good intention is a great start, I suspect we have some distance to travel before we see actual change on the ground.
The Financial Services Authority (FSA) in the UK brought about a detailed regulation for retail distribution of financial products in 2008. Treating customers fairly (TCF) (http:// www.fsa.gov.uk/doing/regulated/tcf) is at the core of this regulation. There are six outcomes listed under TCF, which provide a good framework to see what we are doing in India and how much more needs to be done.
First, customers need to know that they are dealing with firms that have a corporate culture of treating customers fairly. When firms employ poorly qualified relationship managers, whose conversations are primarily oriented towards selling, customers see a sales culture. We need mandatory, basic qualification, highquality communication, and knowledgebased customer interaction to achieve this change. Second, products and services should be designed to meet customer needs and should be targeted accordingly. It is common for the products that offer higher incentives to find their way into the white list of offering for the customer. The latter have to know how the product or service meets their needs. They should insist that the positioning of the product is not based on its performance alone, but is aligned to how it works for them. We need mandatory processes that ensure compliance and impose penalties.
Third, customers should receive clear and reliable information before, during and after the point of sale. Elaborate regulation on information disclosure in India has led to lengthy and verbose offer documents and agreements. Retail distributors depend mostly on communication material provided by producers. We do not have research that tells us how information is perceived, understood and used by customers. Formal processes should be in place to incorporate this research into regulatory formats and market practices for information disclosure.
Fourth, when customers receive advice, it should be suitable and take into account their specific circumstances. A bank relationship manager selling a credit card or home loan may rely on internal computations for a customer’s credit limits. However, the actual amount of loan that the customer can reasonably service might require more inputs on income, existing liabilities and assets. It takes a wellqualified, knowledgeable and informed adviser to play this role.
Fifth, customers should be provided with products that perform as they have been led to expect. It is easy to sell on the basis of false promises; more so, if accountability for untruth is absent. It is tough to tell the customer that the fund being sold might underperform its benchmark; or that the insurance policy might deliver only in the long run; or that the annuity might provide a negative return after adjusting for inflation. However, fairness towards the customer requires building the right expectations. Assurances about return are unethical, even if they are easily understood and persistently sought by customers.
Sixth, customers should not face unreasonable post-sale barriers to change the service providers, service a claim or make a complaint. The sum total of all lapses in the five practices listed above manifest in a large number of customers in the Indian markets facing severe postsales barriers. Many are stuck with products and services that they are dissatisfied with, but are unable to get rid of. Customers find that complaints are not redressed in a reasonable time frame; claims are turned off citing clauses and provisions that were not highlighted during the sales process; and service providers make it tough and expensive for customers to switch.
What does it take to ensure that we treat customers fairly? We need a regulatory framework, which includes everyone who sells a financial product or service to retail customer. What are the problems we have? Intellectual capital to create such a framework is limited; multiple regulators in the financial market are unwilling to come together; vested interests, including that of the government, come in the way of disbanding undesirable practices; and setting a high standard for the business is seen as expensive, inhibiting and restrictive. Hence, we are unable to move ahead from anguish, activism and hype about mis-selling in financial services to cohesive and meaningful action.
Courtesy:
Uma Shashikant
—The author is Managing Director, Centre for Investment Education and Learning, and can be reached at uma.shashikant@ciel.co.in
http://epaper.timesofindia.com/Default/Scripting/ArticleWin.asp?From=Archive&Source=Page&Skin=TOINEW&BaseHref=TOIM/2013/01/14&PageLabel=18&EntityId=Ar01801&ViewMode=HTML
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