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Shopping around for better service

It is important to treat the FSA’s recent mystery shopping exercise looking at disclosure documents as an opportunity to learn from mistakes and correct them, says John Webster

The Financial Services Authority recently published the results of its mystery shopping exercise looking at how lenders and intermediaries present customers with Initial Disclosure Documents and Key Facts Illustrations.

The results weren’t as positive as the industry and the FSA might have hoped. The companies surveyed were non-compliant in 55% of cases. A total of 82 visits and calls were made to 62 lenders or intermediaries. The results revealed that companies failed to provide an IDD or KFI in 28% of the mystery shops, and in a worrying 15% of cases neither document was supplied. A further 12% of mystery shoppers were provided with the IDD and KFI but not at the appropriate time. What can we learn from this?

Mystery shopping is a research tool that should be embraced by the industry rather than feared. Carried out by an independent research company – not by FSA staff – it provides feedback that gives an insight into how the public sees a company or an individual representing that company. It can also be used to gather qualitative data on a specific action or function, such as the provision of documentation.

This was the second mystery shopping exercise since regulation was introduced less than a year ago so it’s fair to assume the FSA has faith in the method. But as with any research tool, there are pros and cons.

The most obvious criticism of mystery shopping is that it takes up time a lender or intermediary could otherwise have spent with a client or on processing an existing application. It’s easy to understand the frustration of an intermediary who has given up some of their working day or evening to meet a bogus client. But the FSA’s exercise revealed that the average length of the face-to-face meetings was only 49 minutes, with a 22-minute average for the quicker telephone interviews despite pre-Mortgage Day concerns the paperwork being introduced would result in overlong consultations.

But given that a firm is unlikely to be approached on a regular basis, the benefits of the exercise outweigh the inconvenience and potential loss of earnings caused by an occasional interview. Far better to be told you’re doing it wrong by the FSA than to have a mis-selling claim against you.

The other, more serious criticism is that mystery shopping is too prescriptive and does not allow for any movement away from the assumed path. In many cases, a mystery shopper records findings on a questionnaire that covers a variety of issues but offers limited responses for the subject to choose from. Closed questions like this don’t take into account middle ground responses and do not allow for variations from the prescribed format. Some questions are straightforward, such as -did the adviser provide you with a KFI, yes or no? But is important mystery shopping is not over- controlled or too constrained.

Mystery shopping isn’t new to the mortgage industry. Prior to Mortgage Day the MCCB conducted a mystery shopping exercise looking at the way mortgage advisers approached the question of affordability in the initial customer consultation. The results showed advisers were considered professional, friendly and knowledgeable. A total of 96% of mortgage consultants were thought to be professional, 95% were judged to be knowledgeable about mortgage products and the application process, and an impressive 98% of mystery shoppers felt comfortable giving their personal financial details to the mortgage consultant.

The first mystery shopping exercise carried out by the FSA concerned lifetime mortgages and the advice given to customers about equity release. It found a staggering 70% of advisers didn’t request enough information from the customer to be able to properly assess their suitability for an equity release product. Some industry figures have predicted that the FSA will return to this subject for its next mystery shopping exercise. Some suggest this might focus on whether customers are being advised to take too much money from their homes in a lump sum.

Aside from the disappointing statistics, the striking thing about the recent mystery shopping results was the reaction from the industry. The tone of some responses suggested some people enjoyed hearing their fellow lenders and intermediaries had messed up. But how confident are any of us about our performance since Mortgage Day? How comfortable would you be if your company had been put in the spotlight, and how will you feel if you are included in the next exercise?

The important thing to remember is that it is less than a year since Mortgage Day and we’ve all embarked on a steep learning curve. Much of the legislation is complicated and it is understandable that there are still issues to be smoothed out. This is particularly true when it comes to KFIs. There has been much debate about the length and effectiveness of KFIs and lenders have made changes to their documents since M-Day but the arguments rage on with no end in sight.

It would be best to treat this as a learning experience. A total of 55% of the meetings were non-compliant, a disappointing figure in anyone’s books. It would be interesting to know why the companies in question didn’t produce an IDD or KFI at the right time, or at all, but that information is not going to be forthcoming. Instead, lenders and intermediaries would benefit from working together to double or triple-check that the intermediary has direct access to regional sales managers and underwriters to help with queries about the KFI or application, and that training needs are identified and met. With Treating Customers Fairly high in everyone’s awareness it is essential the customer is presented with the necessary documentation and relevant information is clearly explained.

As with any feedback, the important thing now is to act on the results.

Buying the idea of mystery shoppingl
  • Mystery shopping is an invaluable research tool that should be embraced by the industry.
  • Companies involved in the FSA mystery shopping exercise failed to provide an IDD or KFI in 28% of cases, while 15% didn’t supply either document.
  • The FSA’s latest exercise revealed the average length of face-to-face meetings is 49 minutes, and just 22 minutes for telephone interviews.


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