Steve Jones is CEO at N4 Solutions
The Financial Services Authority’s (FSA) updated document on ‘Treating Customers Fairly’ (TCF) published in July is both a challenge and an opportunity for the mortgage sector. It being principles-based, as opposed to regulatory in its approach, gives firms the opportunity to implement their own interpretation of TCF. However, as the TCF document suggests, the regulator is looking to firms to take things forward under their own initiative, and the ball is now in the mortgage sector’s court to rise to this challenge and give TCF some backbone.
The FSA has clearly stated that TCF should be an integral and continuous part of the business process. It is easy to pay lip service to certain principles and for senior management to convince themselves that all is in order on the ground. However, it has sometimes failed to trickle down to the staff dealing with customers on a day-to-day basis. It is clear the FSA is aware of this and is looking for a demonstrable commitment to TCF throughout the organisation, with clear results, which have been evidenced within the organisation.
FSUB
For many organisations this is a challenge. In the FSA’s eyes, customer satisfaction is not the same as TCF, and it is expecting relevant TCF management information to be collected on a regular and ongoing basis. The problem is most companies equate a high level of customer satisfaction with good TCF, but they are not inextricably linked.
TCF has to be a great marketing boost for mystery shopping suppliers. Ian Lyons, CEO of Optimum Contact, the mystery shopping specialists, said: “The profile and delivery of TCF on the ground can be variable. Our clients are now identifying specific TCF activities that are mapped onto the relevant parts of the mortgage process and reported upon”. Even for companies who may well believe they practice TCF, they must now be able to demonstrate it clearly to management at a board level, and to the FSA, on demand.
Compliance
The good adviser, who is looking after his customer in the best possible way, is fulfilling his ethical obligations to TCF. Let’s face it; no other sales regime requires that the adviser has accountability across the whole sales process. There are now over 50,000 mortgage products according to Trigold’s latest research, so how can an adviser possibly keep abreast of all products plus provide more holistic advice? This problem is reflected in some high profile mis-selling cases, where the FSA has criticised the way the broker interacts with the client.
The only possible way to support the adviser in this process is to radically improve the point-of-sale support – the key being to provide systems that create a compliant backbone to the sales process without restricting the adviser’s ability to provide advice. Furthermore, technology should be able to create an environment that allows the adviser to extend their advice into other areas, such as a full range of financial products, enabling them to provide holistic advice.
The efficacy of these systems is recognised by the FSA. In its report on the mortgage sector, the FSA cites a good example of TCF: ‘Some lenders are encouraging compliance by using systems which prompt advisers about the relevant regulatory requirements. They are monitory advisers and acting on any failings. This reduces the scope for error.’
One has to wonder how an adviser can tick all the boxes in terms of regulation, TCF principles, making sales and handling administration without the support of technology throughout the process. I believe that, in the future, sophisticated point-of-sale systems such as these will underpin 80 per cent of mortgage transactions as they clearly benefit both the adviser and provider.
Provider security
Under the new regime, providers are taking on an increasing responsibility for the compliant sale; even those that have no end-distribution are not allowed to shirk their responsibilities.
From the provider’s perspective, a more effective point-of-sale environment can deliver the assurance that procedures are being followed and that the relevant accompanying information is being provided to the consumer.
End-to-end communication
Historically, talk about end-to-end, and the focus is on processing and not communications. However, this is now an area of concern to the FSA. It said: ‘Many firms need to communicate better. Standards in this area are disappointing, with successive pieces of our work showing high failure rates for both the provision of disclosure documentation and the adequacy of content’. The FSA’s work into the sales of non-conforming mortgages in smaller mortgage brokers (Sept 05) found that in 60 per cent of cases insufficient information was obtained about the customer and in 80 per cent of cases there was a lack of evidence to show how the recommended non-conforming product met the customer’s circumstances. The FSA recognises there have been improvements, however, its early work ‘found disappointing results’ with the documentation being overly complicated, legalistic and sometimes lacking key information.
This clear indication of the responsibilities of providers will be to the benefit of brokers. Providers will be more willing to invest in the technology and support, which will enable the broker to focus on what they do best – adding value to customers. At the same time, this technology backbone should minimise the risks to all.
For brokers, point-of-sale systems have a two-fold advantage; in addition to minimising the risk of mis-selling and ensuring correct procedures are followed, the templates and key features documents automatically provide all the paperwork required, reducing the amount of time spent on paperwork and maximising the amount of time brokers can spend with customers. Furthermore, the system can feed back to the provider accurate and verifiable information, giving senior managers an accurate overview of sales processes within and without their organisation.
This does not, by any stretch, mean that the adviser will be replaced by technology; on the contrary, the huge range of products available and the increasingly complex personal situations of many customers mean that quality advice will continue to be extremely important. Technology underpins and facilitates the implementation of TCF across both providers and distributors, leaving each free to focus on the core elements of their business.
