SO WHAT’S in store for consumers of financial services this year? Hopefully, 2013 heralds better treatment, whether in the insurance, savings or investment world.
With a new conduct regulator, the Financial Conduct Authority (FCA) assuming its distinct role and powers in April, we should certainly expect a reinvigorated focus on protecting consumers.
It’s already made a lot of noise around identifying detriment earlier and intervening more quickly if it sees undue profits being made from mis-selling high products to people who don’t need or can’t use them. Given that the compensation for the mis-selling of payment protection insurance (PPI) looks set to top a staggering £10 billion and is still rising, that has to be good news.
So, too, does the FCA’s stated focus on more effective competition to deliver better outcomes for consumers. You only have to look at the stagnant state of high street banking and the difficulty that potential new entrants have in breaking into this market to know how much we need this kind of focus on competition. While moves to encourage greater and easier switching between current accounts are helpful, if customers don’t see any difference between the banks and their products, there’s little incentive to move. Greater competition would help, particularly if new entrants could spur a somewhat complacent banking industry into improving their service and developing better relationships with their customers, possibly even rewarding them for their loyalty, as in other retail sectors?
There will certainly be significant challenges this year for those in social housing, as “the bedroom tax” takes root. This new move to cut the benefits of those deemed to have a spare bedroom comes into force as the looming spectre of welfare reform threatens to hit some of the most vulnerable and least financially capable people in society.
We have to hope that the financial services industry will recognise and rise to at least part of the challenge, making access easier and basic bank accounts more available. The FCA’s new powers in relation to access to financial services are also good news as at last somebody is charged with a responsibility in this regard.
The spotlight this year will also be on the insurance industry, given its importance both in general and life insurance. Consumers still yearn for good value products, for clearer and fairer charges and for communication that actually makes sense.
The company that grasps the need to communicate in a language we can understand, devoid of jargon must surely benefit. Treating customers fairly is also critical, as obvious as that may sound. That means, for instance, not using insurance renewals as a way conveniently to hike prices and erode cover, or not dealing fairly with customers when they come to make legitimate claims on policies. When it comes to insurers, treating people fairly means fair charging and decent products.
How can it be fair for employees languishing in old-fashioned pension schemes to find they are facing six times the charges of newer schemes? Or, as many people coming up to the time to buy an annuity find, that they are not steered to the most advantageous option, either in terms of provider or type of annuity?
This takes me to the whole topic of advice. For many years, the Financial Services Consumer Panel has been a strong supporter of the retail distribution review (RDR), the investment advice reforms that came into effect this week.
As well as raising professional standards in the advisory community, commission is now banned and advisers must agree a fee with their clients upfront. This is indeed progress. Previously, many people erroneously thought advice was free, a situation which suited the industry quite nicely. The RDR should ensure that advisers will be acting in their clients’ best interests.
Of course, they will have to convince clients that their fees re worth paying. Some consumers may baulk when the extent of the fees they have been paying are revealed. But in the longer term consumers should have more buying power to negotiate. And in the shorter term, the advent of the free and unbiased Money Advice Service, particularly if it develops its offering, should help bridge the advice gap. The development of more straightforward products which “do what they say on the tin” would also help foster trust and confidence.
Last but not least, it’s impossible not to talk about the EU and some of its deliberations. Two weeks ago the EU gender directive was implemented, banning insurers from differentiating between customers on gender grounds. So, in theory, young male drivers should get a better deal. Women coming up to annuitise should benefit.
Will it happen? Will insurers play fair? Watch this space….
l Kay Blair is vice chair of the Financial Services Consumer Panel