What’s fair? Balancing regulatory imperatives with commercial success
July 2007
Senior managers will be familiar with the confusion that plagues the treating customers fairly debate. How do we distinguish TCF from customer service? How do we measure it? What does a TCF change programme look like? Is it primarily a compliance issue? There are, however, just two questions that senior managers must answer in the TCF debate: why bother and what do we mean by fairness?
Huntswood has discovered what drives the fairness agenda from a customer perspective and, therefore, what fairness is and what makes it commercially attractive. Customer insight surveys conducted by Huntswood during the first half of 2007 showed that although customers would probably not leave a firm to join another if they perceived it to be fairer than their own, they would leave their existing firm if they felt they had been treated unfairly. This builds the case for the commercial driver for TCF being predominantly about customer retention, not acquisition.
A commercial point of view The starting point for senior managers’ approach to TCF must, therefore, be from a commercial perspective. A business that drives TCF as a regulatory imperative might see the programme survive in the short term. One that drives it from a commercial perspective, however, will create greater business support and win both regulatory and commercial dividends over the long term. The TCF opportunity offers: improved customer retention; less regulatory burden and therefore less regulatory cost; operational efficiency; and a more profitable and sustainable business.
The Financial Services Authority is not convinced by firms that take a too “regulatory” approach to TCF since this is ultimately less attractive to a business and, therefore, less likely to embed successfully. In addition, an approach that is too compliance-led runs counter to its view that TCF is a principlesbased regulation initiative so should be owned by senior managers and not by compliance.
TCF signals the need to move away from the old-style compliance regime and the emphasis on new business sales as a measure of a firm’s share value. Firms should move towards a more sensible balance between customer acquisition and customer retention. The success of the TCF movement will depend on whether chief executives can trust the City to place appropriate value on both sides of the scales. The responsibility of senior managers is to ensure they “get” the idea and successfully sell that concept to the business.
So how do you actually do it? The first step is to realise that TCF requires substantial cultural change. A firm must define what fairness means in terms of behaviour from the top down and then reward individuals who comply with TCF. These behaviours need to be reflected in processes, so firms must use their definitions of fairness to drive changes in procedures. This means having a system for identifying the TCF processes throughout the product life-cycle, from manufacture to marketing, distribution, post-sale service and fulfilment. Firms also need a method by which to identify where fairness happens in those processes and how to change them when required. Success will lead to compliant people and processes, as well as improved and sustainable customer outcomes.
Delivering and defining ‘fairness’ Survival of TCF as a catalyst for business benefit requires evidence of the commercial rewards of consistently delivering fairness. Without this, the business will not see the point, and the organisation risks failing to embed TCF. Senior managers must have a working definition of fairness that enables them to define their “key fairness indicators” so that they can gather the right management information to provide them with assurances that they are treating their customers fairly.
This information must also demonstrate improvement against the FSA’s TCF customer outcomes and — critical to the sustained success of the programme — that the business case for TCF is commercially attractive.
Huntswood’s work in this area has shown that the lack of a clear definition of fairness and the resulting consequences are the most common reasons why firms struggle with successfully implementing TCF. Fairness definitions are at best too vague to be useful, and at worst non-existent. Without clarity, a firm cannot measure the benefits of fairness, and therefore can never truly embed TCF. Firms should focus their definitions on three things: a balanced exchange of value between the customer and the firm; suitability of product to customer needs; and the matching of expectation with reality throughout the product lifecycle.
Combine this with a fully committed senior management team backed by a properly controlled and adequately resourced approach to change and you will succeed. At the heart of the TCF movement sits the requirement for a firm to trust its employees and use their judgement on how they should treat customers fairly. To do this, however, firms need to provide their employees with clarity about: what fairness means to their organisation; how the firm will measure TCF; and how the firm will reward employees for being fair. It is a definitive move away from rules compliance towards principles-based compliance. If played right it will increase sales, persistency and customer retention and decrease cancellations and complaints. The big challenge for senior managers is to believe it, make it happen and then prove it.
Andrew Wheeler
Principal Consultant
Huntswood