FSA’s mystery shopping highlights concerns

Recent findings by the FSA have highlighted concerns with the way insurance risks are communicated to customers. The FSA plans on continuing these proactive supervisory methods of charting conduct risk management as they transition into the Financial Conduct Authority.

Mystery shopperThe Financial Services Authority (FSA) has recently revealed their findings from their latest mystery shopping review, carried out on various banks and building societies between March and September of last year. By carrying out this mystery shopping review, the FSA aimed to gather data on customer experiences and review how that data corresponds to current issues covered under the current retail conduct risk outlook.

Mystery shopping is just one of the supervisory tools which the FSA uses to carry out assessments of the institutions within their regulatory remit. These methods of supervision will continue to be implemented, as the FSA transitions into the Financial Conduct Authority (FCA) later this year.

This recent mystery shopping review targeted 6 major retail firms, and focused on the quality of service provided to customers looking make a large large lump-sum investment. Results showed a positive result, with approximately three-quarters of mystery shopping customers receiving proper advice.

However there were some concerns on the remaining quarter, which saw a slump of quality information.

  • In 15% of mystery shops, the evidence suggests that the adviser did not gather enough information to make sure their advice was suitable – so it was not possible to assess whether the customer received good or poor advice.
  • In 11% of mystery shops that were properly assessed, the evidence suggests that the adviser gave the customer unsuitable advice.

Primary sources for poor advice within insurance advisers’ recommended were seen as failing to address:

  • The level of risk customers were willing and able to take (15% of mystery shops)
  • Customers’ financial circumstances and needs, for example, advisers failing to recommend the repayment of unsecured debts – such as loans – where this would have been the right option for the customer (13% of mystery shops)
  • The length of time customers wanted to hold the investment (6% of mystery shops).

Other additional examples of unsuitable advise from banks included risk-profiling tools that assumed an inappropriately high level of financial and mathematical prowess, confusingly written material that did not clearly address risk categories to customers, and advisors who failed to consider unique customer needs and circumstances.

The FSA reported that in response to their findings, the firms involved were eager to take immediate action to reduce their conduct risks and improve customer experience. Conduct risk managers within these firms said changes would include retaining schemes for advisors, reviewing their advice processes as a whole, and identifying prior pitfalls to be better clarified in the future.

Speaking on their findings, FSA director of supervision Clive Adamson said:

“Mystery shopping allows us to understand what customers experience when they purchase financial products. This review shows that customers are not consistently getting the quality of advice on their investments that they should expect when visiting an adviser in a bank or building society.”

“Whilst we are disappointed by the results of this review, we are encouraged by the action that the firms involved have taken to rectify the situation for their customers. Since this review took place, we have introduced new rules on investment advice which have increased the professional standard of the advisers operating in the market and have removed the potential for advisers to recommend products that pay the largest commission but may not be right for the customer.”

Previously:

Managing conduct risk
Top 9 customer concerns in banking

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