Last year, mortgage brokers targeting sub-prime borrowers came in for criticism from the Financial Services Authority which told around 200 firms to withdraw or amend misleading advertising.
The FSA’s view is that poor financial promotions trying to win sub-prime customers often point to more deep-rooted problems. For example, promotions with a lack of transparency in fee disclosure as well as customers being sold sub-prime mortgages when there is no history of poor credit highlighted other problems upon investigation, such as poor systems and controls throughout the businesses. The result was that several of these firms were referred to the FSA’s enforcement division.
All of these observations can be traced back to the principle of treating customers fairly. At its heart this is fundamentally making sure clients understand what they are buying and the risks they are taking on. The FSA believes its role is about changing ” There is little doubt financial advertising has a massive influence on the decisions people make, particularly in the sub-prime market”the culture of financial services so clients can enjoy greater access to good value products, and greater clarity and understanding of the different types of advice, so they can shop around more effectively. This credo covers product design and marketing, through to interfaces between sales and distributors and later complaints handling.
So TCF is not just a compliance issue. Businesses have to demonstrate that they are placing fairness at the heart of their strategy and culture. The effectiveness of a company’s TCF strategy is now included in supervision work. The financial services industry is now expected to deliver on its promises and protect customers from nasty surprises. It is not an agenda to stifle innovation but a challenge to companies to build in the right level of control and not expose clients to unsuitable risk.
Often in brand and advertising work, many of the same descriptions appear in client briefings – such as honesty, accessibility, being professional. But the real TCF issue is whether companies behave as they say. The right words in the board room are frequently not backed up with targets that support these values. How often do marketers spend hours agonising about how better to know their customers only to increase exit fees or squeeze more out of a rate?
There is little doubt that financial advertising has a massive influence on the decisions people make, particularly in the sub-prime market, where they are making one of the most important financial decisions of their lives. Small wonder the FSA wants to see better standards quickly. It is worth bearing in mind that over the past two and a half years the FSA has taken enforcement action resulting in over 1.5m in fines.
This summer will see the publication of further findings on promotions in conjunction with work looking at whether customers are treated fairly throughout the sub-prime mortgage advice and sales process. Let’s hope it shows improvement.
Matt Smith is managing director of WPB Creative