The debate that has been stirred up by the Momentum-Ganas case, and the way it has tested the idea of ‘Treating Customers Fairly’, has raised a particularly interesting question: why is it that the financial services industry should have to be forced to treat its customers fairly?
Surely giving their customers fair treatment is the least any business can do? In many industries, if fairness was the bar you set for customer service you would quickly find that you had no customers.
Imagine if restaurants and hotels only aimed to treat their customers fairly, rather than providing outstanding service. There would be no such thing as fine dining or five-star hotels. The best you could hope for would be a decent steakhouse and a passable bed and breakfast.
How would any beauty salon or wellness spa survive if they were content to just be fair to their customers? What would be the incentive to return if you didn’t receive personalised, attentive care?
Skewed power dynamic
It’s worth remembering that financial services are, after all, services. So why should clients in this industry be grateful just to receive treatment that is fair to them?
The power dynamic in that equation is clearly wrong. In most service industries, the client is the party with the influence. If you don’t receive the treatment that you expect, you take your custom elsewhere.
This hasn’t been the case in financial services, however, and for a number of reasons. As Viresh Maharaj, chief executive at Sanlam Corporate Sales and Marketing, recently pointed out, there is a combination of factors that makes the financial services industry unique.
The first is its long-term nature. Most financial products are designed to deliver an outcome over many years, or potentially a lifetime.
Life insurance is the most obvious example. You are only going to need it once, and that may be decades after you purchased it. In the interim, however, you have no way of testing it.
You may pay premiums over all that time in the expectation that your beneficiaries will receive the benefit, but there is no way of being certain that they will. And apart from a lower premium from a different provider, what might possibly induce you to change your insurance at any point? You don’t know what level of service your beneficiaries will receive from any provider when they need it.
Secondly, there is a huge asymmetry of information when it comes to financial services. This is a complex space, and clients are almost always at a disadvantage.
The policy documents from one local life insurer run to over 150 pages. Can any of its clients honestly say that they fully understand everything in there?
When you go to the hairdresser, you likely have a good idea of what you want your haircut to look like afterwards. If you invest in a unit trust, however, do you have a clear picture of what a well-managed portfolio looks like?
The third issue is that the industry is highly intermediated. It is not the norm for clients to be in direct contact with the service provider. There is more often than not a broker, financial advisor or consultant acting as a go-between.
What this means is that the industry often regards these intermediaries as their clients more than the actual end-customer. Financial firms have often been more concerned with treating these intermediaries well than delivering quality service to the people actually using their products.
Finally, the industry has a history of poor practices that it has been allowed to get away with for far too long. Companies have been built on designing products that have been much better for shareholders than they ever were for customers.
There is also a legacy of terrible customer service that is only slowly being eroded. The advice industry is becoming more professional, but the conflicts of interest inherent in it are not easily overcome.
All of these factors have come together to create an environment where many financial services firms are quite comfortable with the status quo. The truth is that they have done just fine for decades treating customers any way they like.
At least we have now accepted that that is not good enough. Regulators and legislators have made it clear that they are going to require more from this industry.
That is a start, but it shouldn’t be the end of it. Getting financial services firms to treat customers fairly should only be a baseline. As Maharaj points out, it’s now up to companies themselves to go further.
“Is treating customers fairly good enough?” he asks. “You should be expected to be treated fairly. If you buy a packet of washing powder from the supermarket, you expect it to work. You need to treat customers exceptionally to differentiate yourself.”