Consumer Needs Research

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Consumer Research

52
Financial Services Authority

Quality of advice process in firms offering financial advice: findings of mystery shopping research

August 2006

Contents
Foreword................................................................. 3 1. Methodology…………………………………………………………………………. 1.1. FSA mystery shopping methodology……………………………………… 1.2. Research International mystery shopping methodology……..

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2. Mystery shopping high-level results………………………………….. 2.1. Background…………………………………………………………………………….. 2.2. Treating customers fairly: high-level results……………………….

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3. Findings and key messages……………………………………………….. 3.1. Impartiality of advisers………………………………………………………… 3.2. Assessment of customer needs…………………………………………… 3.3. Recommendations………………………………………………………………… 3.4. Communication……………………………………………………………………..

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4. Other findings…………………………………………………………………….. 18 4.1 Unapproved individual………………………………………………………….. 4.2. Failure to follow up………………………………………………………………. 18 18

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Foreword
Between January and April 2006 the Financial Services Authority (FSA) carried out supervisory thematic work looking at the way a sample of independent financial advice firms were taking account of Treating Customers Fairly (TCF) focusing on the way advice is given by firms. The sample included a range of different sized firms and comprised: • • FSA visits to 55 firms; and 50 separate mystery shops conducted by Research International, an independent external research agency.

This piece of thematic work looked at how financial advice firms could improve their advice processes and reduce the risk of mis-selling. It was one of the largest pieces of thematic work undertaken by the FSA and studied how advice is given, identifying some of the underlying factors that can lead to repeated episodes of mis-selling. This paper focuses on the results of the mystery shopping. However, based on the results of both the visit and mystery shopping work, the FSA has also produced a separate report for advisers setting out its findings and highlighting examples of good practice, referred to as a cluster report (http://www.fsa.gov.uk/pages/Doing/Regulated/tcf/pdf/advice.pdf). We found many examples of good practice. These have been used to develop composite case studies and detail some of the examples to the industry to help firms improve. However, in a disappointing number of the firms we reviewed, we identified significant flaws in the advice process which may result in consumer detriment. TCF is not a 'one-size-fits-all' concept and it is for senior management to decide what TCF means for their particular firm. Generally, the good and poor practice that we report here is to help firms and their management make that decision: we think the good practice is likely to help a firm treat its customers fairly and the poor practice is likely to get in the way of a firm doing so. Where we report good or poor practice which concerns compliance with or breaches of detailed rules which impact on fair outcomes for customers, firms must of course comply with those detailed rules. For further information please contact Michael Lord at the FSA Tel: 020 7066 5460, email: michael.lord@fsa.gov.uk

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1. Methodology
1.1. FSA mystery shopping methodology
The mystery shops were primarily designed to determine how firms ensure that their customers are treated fairly and to measure the quality of the advice process within the firms. They were also designed to enable identification of the key elements that make up the difference in practices between firms providing good quality advice and firms providing poorer quality advice. They also highlighted both good and poor practices among retail investment firms. By posing as genuine investors, each mystery customer contacted an adviser and arranged for both a preliminary interview and advice appointment. The premise of each shop was that each customer was either seeking advice due...
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