Hazell Carr E-Newsletter | Issue 3

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| E-Newsletter | Issue 3

In this issue: • Embracing Complaints – the ombudsman talks exclusively to Hazell Carr • Mortgage Market Review – are interest-only mortgages the next mis-selling ‘scandal’?

• Enhanced Transfer Values – code of practice and risk to members • Events and Conferences • Word Puzzles

Embracing complaints - the ombudsman talks exclusively to Hazell Carr

Hazell Carr recently approached the Financial Ombudsman Service for an update on complaints and complaint handling – here is what Tony Boorman, principal ombudsman, told us.

It’s no secret that handling complaints properly takes time and money.

According to FSA figures, consumers raised over four million complaints in 2011, and although we can’t know for sure how much money financial businesses spent on handling those complaints, we do know that in 2011, businesses paid out over £2 billion

in redress. But even though these are challenging times for the industry, it’s heartening to hear talk about improving the customer experience – by introducing smoother, more consumer-intuitive processes, and by giving staff the right tools and training to deliver a better service.

But I would encourage you to go further. Rather than fending off complaints at every opportunity, I would urge you to encourage them.

To embrace them for what they can be – essential insights into how you can improve your service and better meet the needs of your customers.

But as well as improving the mechanics of handling complaints, I want to suggest that it’s time to change attitudes to complaints. I know that increasingly, businesses are encouraging their staff seeing serving customers as central to their role.

Things will always go wrong. No customer service system can deliver great service all the time. Slip-ups will happen. What works well for some customers will not be welcomed by others. And products developed in good faith will find their way into distribution channels and to customers for who that product isn’t suited. Hopefully, the systems and controls in your business will identify these things. But customer complaints provide an invaluable front-line source of information about problems. They are a first line of data about the parts of your service that might need review and improvement. It seems to me that getting that feedback, and learning from it, is a critical factor in the successful development of any business’s customer service – but perhaps more so for banking and finance than most others.

A number of people have told me recently that their business is aiming to reduce the number of complaints it receives. That sounds

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very positive. But I wonder whether that is always the right objective.

Perhaps some people should be aiming first to increase the number of complaints. If that sounds odd, let me explain. Customers don’t complain for the fun of it. Almost all feel that a business has let them down – sometimes badly. But many people worry about complaining. They might think, “Will they listen? Will they look at it fairly and put things right if they need to? Or will they ‘get their own back’, or put me on a black list, or ignore me?”

In fact, putting people off complaining is really quite easy. Encouraging them to complain is much harder. Complaint volumes do not tell us much about the relative quality of service that different businesses provide. A poor quality

business – with a reputation for ignoring the concerns of its customers – might receive few complaints, simply because its customers see little point in complaining. In contrast, a business that has a reputation for listening and that invites feedback might receive far more complaints – simply because the customers feel they will be listened to. And the extent to which a business makes the process of complaining easy or difficult will also drive big differences in volumes.

That isn’t to say that complaint volumes are irrelevant. They do tell us something. Overall, the number of complaints raises questions about how a financial business (or group of

businesses) is performing – or at least how its customers feel it’s performing.

That’s why we will draw the industry’s attention to upward trends when we see them.

I think the most revealing insights your customers can offer you arise from those complaints where the complaint itself has not been handled well. Sometimes it’s simply that an initial explanation was inadequate.

You may have been “right” – but the way you explained it wasn’t.

A lot of our work at the ombudsman is around better explaining to your customers why your actions have not been unfair. But it would have been better for everyone if your initial explanation had addressed your

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Embracing complaints - the ombudsman talks exclusively to Hazell Carr

customer’s concerns more effectively in the first place.

In other cases, of course, the financial business has simply failed its customer.

Perhaps it has slipped up. Perhaps it has acted unfairly. And that needs to be put right promptly, honestly and effectively. But that isn’t the end of the story. Many complaints can give valuable insights into how similar problems can be avoided in future – and how customer service can be improved.

So-called “root cause analysis” of your complaints isn’t just a regulatory requirement – it’s common sense.

It’s about improving service and keeping ahead of your competitors.

It’s about better meeting your customers’ needs. I know that complaints don’t always clearly provide insights into all consumer problems. It’s not as simple as that in financial services. A disappointing outcome – say, to an insurance claim or an investment – may be a necessary feature of the product that the consumer has bought. But the issue may be that the customer got the wrong advice – or the business has taken unfair advantage of “small print”.

Financial businesses know this. They know customers can’t always express

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their concerns in legal or regulatory terms. “Are you sure that’s right?” is a question that should lead a financial business to think carefully about whether the outcome the customer feels to be unfair is actually a result of the business’s own shortcomings.

So “root cause analysis” means to get under the skin of concerns – to think calmly and dispassionately about the causes of customer dissatisfaction.

All financial businesses are responsible for handling their customers’ complaints thoughtfully. Many do. But customer complaints aren’t always treated seriously. And even where financial businesses set high standards, customers and businesses won’t always see eye to eye. That’s where we come in. We intervene only if the customer asks us to. And only when you – the financial business – has already had a good opportunity to sort things out.

to feed back what we see for the benefit of financial businesses and consumers alike. So we work as transparently as we can. We already publish information on our website about how we approach complaints, and I’m pleased to say that the government has given us a mechanism for going further. From April we will be publishing ombudsman decisions to show what formal decisions we are making and why.

In these ways and more, we will work with you to improve services for customers – and to support everyone who wants to build customer confidence in financial services.

Our focus is to put things right pragmatically – and as far as possible with the agreement of both the business and its customer. But where necessary, we decide cases and reach conclusions – to draw a line under a set of problems.

Like all ombudsman schemes, we have a responsibility that goes beyond the individual complaint. Crucially, we try

Article written exclusively by Tony Boorman, principal ombudsman www.financialombudsman.org.uk

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How do you approach complaints?

• Do you plan to welcome and encourage customer complaints and concerns?

• When people complain to you, what’s your focus?

To decide whether the complaint is “justified” – or to respond as constructively and flexibly as possible?

• Do you have a means of learning from complaints – however uncomfortable the findings?

• Do you look behind the specifics of the way the customer has expressed their concerns, to consider what if anything has gone wrong?

• Do you work with the ombudsman service to put things right when cases are referred to us?

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Mortgage Market Review - Are interest-only mortgages the next mis-selling ‘scandal’?

On 25 October 2012 the Financial Services Authority (FSA) published new rules based on the findings of the Mortgage Market Review (MMR).

These rules set out a radical plan to alter the way that the mortgage market operates and are set to facilitate a more efficient lending and repayment process.

The new regulations will come into effect on 26 April 2014 and introduce a range of changes, including: • Customers will need to satisfy lenders that they can afford the mortgage – providing evidence of income in all cases.

• Introducing more stringent requirements around defining credible repayment strategies for interest-only mortgages.

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• Rules that do not apply any age limits or prevent lending to older consumers, including beyond retirement.

• Most interactive sales (for example face-to-face and telephone) must be advised, unless the customer is a mortgage professional, a high net worth mortgage customer or a business borrower.

This has come as no surprise to the industry which has received regular updates from the FSA since the MMR started in 2009.

The regulations have been welcomed by Paul Smee, the Director General of the Council of Mortgage Lenders (CML) who has been quoted as saying that the rules: "Bring

certainty. Lenders can now make firm plans to ensure that they meet the new requirements when they formally come into place in April 2014. In practical terms, the regulatory changes have already been widely anticipated and so are unlikely to create any significant additional or unexpected impacts. We look forward to working towards implementation with the FSA and its successor, the FCA, and hope that from a supervisory perspective the regulator will focus just as much on helping lenders and brokers to meet regulatory expectations as on enforcement action if rules are broken."

However, the change in regulation has led to a number of claims management companies trying to capitalise on the situation. Several high profile campaigns have been launched to encourage consumers to complain about mortgage products.

Money Boomerang has launched a TV advertising campaign targeting mis-sold sub-prime and interest-only mortgages following a surge of complaints. Based on their PPI experience, they anticipate receiving in the order of 150 plus enquiries a day. They are not the only firm shifting their focus from PPI. The Ministry of Justice’s register reveals the number of claims management firms

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with ‘mortgage’ in the title has leapt from 21 in March to 46 currently.

To understand the scale of the problem, we need to appreciate the size of the market. In the UK, there are 11.2 million mortgages, of which 43% are interest-only and 75% of these interest only mortgages advanced between 2005 and 2010 have no specified repayment schedule in place.

Research by financial outsourcer HML shows 57.6% of 1,114 interest-only mortgage holders surveyed are confident their final debt can only be repaid based on the appreciating value of their home.

Compounding this issue, 39.3% of mortgage holders say they have no credible plan of repaying their debt at all.

Claims management companies argue that many interest-only mortgage holders have found themselves stuck with an outstanding mortgage they can’t repay and are faced with the prospect of repossession (or sale) as the only ways to repay the lender.

they could not repay and should have ensured that they had a robust repayment strategy in place.

Opinion is divided as to whether there is a mis-selling scandal brewing. Richard Farr, Director of Telos Solutions, has been quoted as saying that “interest-only is still a valid strategy for the right client. I don’t see this as a mis-selling scandal. It may be claims management companies thinking they are going to run out of PPI and looking for the next opportunity”.

Hazell Carr has provided specialist regulatory support and complaint handling services since 1997 to many organisations on a wide variety of products and services. Projects have ranged from major case review and remediation exercises encompassing hundreds of consultants outsourced to our sites, through to the provision of one or two experts to a client site for a number of weeks. We have successfully delivered mortgage related projects, from complaint handling through to mortgage hardship and arrears processing.

Whatever your view on the MMR and the potential mortgage mis-selling scandal, it is clear that the industry is facing a number of challenges, both in terms of implementing the new regulations and coping with the activities of claims management companies. Hazell Carr is well placed to support your firm with any issues in this area.

Additionally, with falling house prices, many homeowners are finding themselves in negative equity. They believe that the lender had a responsibility to not allow the homeowners to take on a debt

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Enhanced Transfer Value – Code of Practice and Risk to Members

Enhanced Transfer Values (ETVs) are a way for employers to reduce the perceived risk in their personal or stakeholder pension schemes by offering a member a cash incentive to transfer out of the pension scheme and give up future benefits. The amount offered for an ETV will generally be higher than a transfer value.

The ‘enhancements’ could be either a cash amount, an increase to the member’s cash equivalent transfer value, or a combination of the two.

ETVs are designed to help reduce the size and funding risks associated with the sponsoring employer’s pension liabilities.

Pension transfer is not a straightforward decision with the risk that poor financial advice could lead to deferred members accepting ETV offers that are less beneficial when compared to remaining in the DB plan. The ETV-related risks to consider in the advice process include the following:

• The risk that members are not given all the information they need to make a fully informed decision.

• The risk that advisory firms do not adequately manage conflicts of interest when they act for both the firm and the employee.

• The risk that poor advice to transfer out of DB plans results in generating less retirement income for members.

• The risk that consumers are advised to transfer to a product that they have little knowledge or understanding of, and there is no support package going forward to help them make future investment decisions.

A significant number of DB plans are closing and employers are increasingly focused on de-risking their liability structure by using ETVs. Sales of Individual Pension Transfers (IPT) have expanded 56% between Q1 2007 and Q1 2011 and KPMG reported that approximately 91,200 individuals have been involved in ETV exercises between 2008 and Q1 2011, with a significant proportion of transfers advised on.

To protect members from unnecessary risk an industry working group has published a voluntary code of practice for incentive exercises on enhanced transfer values (ETVs).

The code is made up of seven key principles, which include: • No cash incentives should be offered that are subject to the member's decision to accept the offer.

• For transfer exercises, advice should be provided to the member. For modification exercises, advice should either

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be provided to the member or a value requirement should be complied with and guidance should be provided to the member.

• Communications with members should be fair, clear, unbiased and straightforward.

• Records should be retained by the various parties involved in an exercise so that an audit trail is maintained for future examination.

• No unnecessary pressure should be applied and exercises should allow sufficient time for members to make up their mind.

• Incentive exercises should only be offered to members who are over 80-years old on an opt-in basis.

• All parties involved in an incentive exercise should ensure that they are aware of their roles and responsibilities, and act in good faith in the areas over which they have direct control.

Continued growth in the ETV market is predicted as DB pension schemes continue to de-risk. An estimated 50% of employers or schemes are considering an ETV exercise, which implies that approximately 2.5 million deferred members could be offered ETVs across 3,500 DB schemes in the medium term. While it can be argued that firms need to manage their

pension liabilities, this must be undertaken in a way that enables scheme members to make informed choices.

advisers must use when undertaking transfer value analysis, to clarify and update them and reduce the risks to consumers of receiving bad advice.

The FSA has discovered that some of the bigger firms in this market have been giving poor advice. In 2010 they issued a joint statement with the Pensions Regulator, highlighting concerns about the quality of advice being given and whether firms are identifying and managing the conflicts of interest that occur. They also reminded firms of their statutory obligation to act in the client’s best interests and follow pension transfer rules. The practice of offering cash incentives for people to give up valuable salary-related pension rights was a source of particular concern.

The issue of pension costs is not going to disappear and the occurrence of ETVs will potentially increase. More and more people are living longer and this aging population will continue to concern employers who provide a final salary scheme.

However, everyone who is offered an ETV in the future should be provided with all the information they need to make an informed decision that is right for them, in line with the code of good practice relating to incentive exercises.

The rules in COBS require a pension transfer specialist to compare the benefits to be paid under an occupational pension scheme with the benefits of a personal or stakeholder pension scheme, before it advises a retail client to transfer out of the occupational scheme. The starting point is always that a transfer will not be in the client’s best interests.

For further information on ETVs and following best practice, please contact Anthea Coulter on 0118 951 3907.

As a result of external regulatory changes and feedback, the FSA consulted in February 2012 on changes to the assumptions that

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Events and Conferences

Momentum Conference 2012 In December we attended the Momentum Conference 2012 in Scotland. The Momentum Conference offered an opportunity for nearly and newly qualified actuaries to build upon their actuarial skill set and hear from industry experts.

The theme of this year’s conference was ‘thriving on the unknown’ looking at how actuaries can survive in the current economic climate.

Water Industry Customer Conference – 24 January 2013 We will be attending with our sister company Equiniti ICS in Birmingham.

The conference will focus on the changing role of the customer in the water industry. The Conference aims to give professionals in the sector the opportunity to better understand the policy framework around the customer experience and share best practice with their peers.

Hazell Carr Industry Round-Table Breakfast Seminar Tuesday 12 February, 9.30am-12pm, The Landmark, Marylebone Hazell Carr will be holding a ‘complaints round-table’, which will be held in February 2013 in Central London. The idea of the event is for individuals working in the complaints space to meet with their peers, share information and discuss common industry issues. This was suggested to us by a number of clients, who are interested in how other organisations are approaching industry-wide issues. As a result, we have decided to host this event, attended by senior individuals in complaint handling operations, who have first hand knowledge of the current issues.

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In order to provide a little structure to the event, we suggest to base the discussion around the following topics: · · ·

Claims Management Companies (CMCs) Proactive mailing sharing learnings FOS escalations and overturns

These are issues that organisations have recently raised, however, this is a completely open forum for firms to discuss issues relevant to them, so we are keen to get suggestions to add to the topics above.

If this is something you are interested in attending then please get in touch as we have a few spaces left.

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Word Puzzles

Whoever answers the most questions correctly will win a £25 voucher. Just send an electronic copy of your answers to contact@hazellcarr.com or print this page and post to: Business Development Team, 27 Kings Road, Reading, Berkshire, RG1 3AR. In the event of a tie, a winner will be selected at random.

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Hazell Carr is one of the UK’s leading providers of skilled resources operating in the financial services industry today.

For more than a decade, Hazell Carr has provided companies with a range of placement services, focusing on complaint handling, customer services, pensions administration and actuarial expertise.

With experience across many different sectors and projects, our clients benefit from a highly experienced, skilled and versatile resource pool (staff and associates), helping them manage workloads, develop best practice and transform their levels of customer service.

Contact Us 0118 951 3971 contact@hazellcarr.com www.hazellcarr.com

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Hazell Carr is a trading name for Xafinity Paymaster Limited. Registered Office: Sutherland House, Russell Way, Crawley, West Sussex RH10 1UH. Registered in England and Wales No. 3249700. Paymaster (1836) Limited is authorised and regulated by the Financial Services Authority. A Xafinity Limited Company.

The information contained in this newsletter should not be relied upon for detailed advice or taken as an authoritative statement of the law.