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01 May 2007 Comments
Handling complaints
Over the last few years, the volume of complaints received by financial services companies has increased dramatically. Initially the rise in the level of complaints stemmed from the well-publicised endowments mis-selling scandals that hit the financial services industry in the 1990s. Although the complaints for this kind of investment have diminished, there are a number of new areas of financial services where complaints are rising significantly. This trend poses a major challenge in how the industry adopts best practices to deal with complaints effectively in future.
There are two main catalysts effecting how complaints should be handled — the regulator’s proactive leadership role and public pressure for change in the aftermath of financial scandals.
The Financial Services Authority has introduced Treat Customers Fairly guidelines including a key section that provides clear rules on how to handle complaints. Complaints, and the routine complaints reports that have to be submitted to the FSA, give the regulator a window into the firm. Complaints handling will undoubtedly become a key component in a firm’s risk rating, so it is critical that organisations reassess their complaint handling process, staff training and the monitoring of complaint handling outcomes regularly.
Aside from the regulator, news events are heaping more pressure for greater accountability and transparency in the UK’s financial industry. The Citizens Advice Bureau has recently spearheaded a high profile campaign highlighting the unfairness of personal protection insurance. The organisation argues that PPI is too expensive and is sold to people who didn’t need it. As a result, the Office of Fair Trading has announced a probe into the UK’s £5 billion personal protection insurance market. The investigation will look into whether PPI providers are making excessive profits and if they are treating customers fairly.
In another complaints scandal, the Consumer Action Group and consumer magazine Which? are lobbying banks to refund consumers where they have charged exorbitant penalties on overdrafts. Many banks have charged their customers disproportionate amounts for going over their overdraft limits. As consumer awareness of these issues rises, the trend of customers complaining about products and services will undoubtedly escalate.
Looking forward, there are several other areas that are likely to be the source of complaints in the future. Individual Personal Pensions or unfair charges on credit cards may well be the industry’s next smoking gun for wide scale complaints. There is a view that financial services organisations are profiting at the public’s expense. It is crucial that a company ensures that the correct processes and procedures are in place as soon as a complaint is received and subsequently dealt with.
Changing the perception — examining the benefits
A major influence that affects the quality of complaints handling is each organisation’s perception and approach to complaints. Traditionally the first reaction to a customer complaint is to view it negatively. And while it is true that complaints are not something to celebrate, the FSA is directing financial services companies to look at complaints as an opportunity to improve the business. Complaints provide invaluable feedback about where the business needs to improve and is a clear indication of flaws within the business process, from the most important stakeholder — the customer.
Businesses spend a lot of money on research, telemarketing and expensive customer surveys to find out how they and their services are perceived. Often they need to look no further than their complaints handling department to find this information and enable them to enhance their products and services lines.
Complaints handling is also about putting in place the right culture within a firm so that staff are motivated and have the right attitude. The root cause analysis of a complaint, followed by commitment to remedying the cause and bring in best practices, will ultimately benefit the business.
Financial services companies should also consider the substantial penalties for not dealing with complaints properly. A review of the FSA’s financial penalties in 2006 should provide ample motivation. In a recent case, the FSA fined Guardian Assurance £750,000 for serious systemic flaws in its mortgage endowment complaints handling procedures and for not drawing the problems to the attention of the regulator.
The FSA’s position on complaints handling is neatly summarised by Margaret Cole, the FSA's director of enforcement. She states: “Firms must have robust complaints handling procedures in place and must communicate to the FSA any problems or risks to the fair handling of complaints as soon as they arise. If in doubt, firms should approach the FSA and not sit on the problem. We have done considerable work in ensuring firms understand what our complaints rules require of them to ensure that customers are treated fairly.”
So what are financial services companies’ obligations in this area? Under the FSA’s regulations, “any expression of dissatisfaction about any financial services activity provided or withheld by your firm” must be dealt with. Ironically, the broad scope of the term means financial organisations need to conduct a thorough, sophisticated and consistent approach to all complaints it receives.
The process and procedures
All financial services companies need to have a system in place that gives them the ability to capture any form of complaint. Furthermore, they must be able to address complaints in a timely manner in accordance with strict regulations that govern the maximum amount of time a company should take to address key stages of a complaint.
The person dealing with the complaint must be appropriately skilled to investigate and settle it and provide the right response. This may be to issue an apology, provide compensation or refute the complaint if appropriate. Financial services organisations must have the right strategy to deal with complaints consistently and, as importantly, this needs to be communicated to those people dealing with complaints to ensure the correct processes and procedures are followed.
Under its recent regulations, the FSA now makes the directors personally liable and a serious breach of financial regulations may result in damage to reputation, significant fines or, in some cases, a jail term for the directors of the company.
The impact on operational risk posed by the failure to ensure complaints handling staff are aware of their responsibilities can be significant. Employees involved in the complaints process must be made aware of their individual responsibilities in relation to who is responsible for handling each stage of the complaint. This is where business process management technology is so important — it integrates people, process and technology to provide a single, efficient complaints handling solution that supports both centralised and decentralised complaints handling structures.
BPM plays a major role in helping financial services organisations deal with complaints. Specialist providers, such as Global 360, provide solutions that manage the process and content of complaints ensuring that complaints are captured, investigated, and settled effectively and with the appropriate management controls. These solutions are invaluable in the handling of complaints to ensure consistency and compliance.
Technology can enable an organisation to clearly define and manage the complaints procedures, ensuring service levels are met and it can automatically take care of all complaints documentation and remove the risk associated with decision-making. Solutions can also handle the reporting requirements to the FSA removing a significant amount of manual effort and deliver a clear view to management of how well the organisation is dealing with complaints.
Conclusion
New regulations combined with the public’s growing demand for better standards of service are setting higher expectations on the financial services industry. It is more important than ever that organisations ensure the correct procedures for complaints handling are in place. With the FSA dealing out over £13 million of fines in 2006, it is crucial that financial services organisations take a strategic, best practice approach in this area. This will ultimately lead to a greater retention of customers, protect reputation and ultimately, enhance the bottom line.
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