Consumer protection:
rising to the challenge of the RDR
The
Financial Services Authority’s recent Retail Conduct Risk Outlook
(RCRO) has provided another opportunity for the UK industry to vent
its views about who will really benefit (or not) from the Retail
Distribution Review (RDR).
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Indeed, in the RCRO report, the FSA
expresses its concern that new business models emerging as a result
of the RDR may actually create greater risks for consumers.
Concerns such as poor
risk-profiling, unwarranted use of complex, illiquid, high-cost
products and the use of convenient statistical data in wealth
practices have been highlighted by the RCRO.
Customer focus, ethical and
efficient
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By GlobalDataIt may be worth taking a step back
and reframing the debate. We need to look for areas of agreement
rather than areas of disagreement before delving into the rights
and wrongs of the RDR.
The FSA and the private
banking/wealth management industry agree that becoming more
customer-centric, being driven by customer needs and exceeding
their expectations is a sensible route. This is not just for long
term survival, but for sustainable success.
No one is denying that practices
could be improved. Both from an ethical and an efficiency
perspective, customers have not been treated to as open and
transparent a product set as they could have been. Service levels
have not been as high as expected given the level of fees or
charges that are levied.
No one is arguing that consumers
should not be protected from what the media likes to call ‘sharp
practices’, whenever and however they occur.
We all agree that a more
consumer-focused approach would be good for everyone. We all agree
that a change in culture is needed and that an environment where
that cultural shift is recognised and appreciated would be
welcome.
A regulatory
debate?
But by seeing the debate as a
regulatory issue, we risk missing the point. You cannot change a
company’s culture, let alone an industry’s culture, by regulation.
I can see what the FSA is trying to do and I applaud the
intent.
The wealth management industry has
a choice. Instead of the endless debate about cost and interference
with market forces, the RDR and its impact on consumers as reported
in the RCRO should be seen as an opportunity.
For example, Mark Cheshire, former
chief executive at Lloyds Private Bank, has decided to welcome the
RDR as a mechanism to force long overdue changes to the
industry.
“I see the RDR as a chance to
return to old fashioned values with a modern twist” says
Cheshire.
“We are all being told to make our
business easier for our customers to deal with by improving service
levels, providing better access and more efficient
distribution.
“We are being strongly advised to
understand our customers as individuals. We are being expected to
demonstrate real expertise, with credible qualifications, detailed
product knowledge and strong technical skills.
“How can we argue with that? I
would expect the same of my doctor or my accountant. Why not my
banker?”
To achieve cultural change we need
more than fine words and a checklist. We need to provide a process
and technology infrastructure that makes the right behaviours
easier rather than harder.
We need skills and capabilities to
strengthen our resolve and commitment. And we need to invest
capital and time to make it all happen.
There is no doubt the RDR, and the
FSA’s quest for greater consumer protection, is a challenge. Our
long-term future depends upon the satisfaction of our customers and
we should rise to the challenge rather than fight it.
Jonathan
Chocqueel-Mangan is managing director of leadership consultancy
Tyler Mangan
