Addressing consumer trust in financial services and elsewhere

The phrase treating customers fairly, or TCF for short, is so ingrained in South Africa’s financial services landscape that you would expect nothing but static on the radio shows dedicated to consumer rights. Likewise, you would hope the annual financial Ombud scheme reports contained little more than operational updates.

Unfortunately, the consumer-focused programmes and ombud case studies are still chockful of negative feedback, documenting a litany of unpleasantries foisted by the financial services industry on Jane and Joe average.

Life and non-life insurers getting lashed

TCF and consumer experience were top of mind this week in the wake of the 2023-24 Insurance Ombudsman report and a couple of Advertising Regulatory Board (ARB) rulings against a prominent financial product provider.

The aforementioned reports, and the latter dressing down, suggest that product providers, assisted by their tied agents and telesales divisions, are often complicit in non-TCF outcomes. This writer is sympathetic to the plight of independent, traditional financial and risk advisers who are frequently blamed for poor consumer outcomes when the mis-selling and / or client-product mismatches that trigger such outcomes arise elsewhere.

South Africa boasts an impressive consumer-focused regulatory framework built around the Consumer Protection Act (CPA) and enhanced in the financial advice realm by the Financial Advisory and Intermediary Services (FAIS) Act and its General Code of Conduct. These laws serve alongside primary industry-specific legislation to ensure pro-consumer outcomes. For example, insurers must comply with a set of policyholder protection rules that are quite explicit regarding their interaction with customers and marketing of product etc.

Companies that trip up over these guidelines are usually taken to task by the Ombud schemes or, often more brutally, by the media.

Regulatory framework has its shortcomings

Unfortunately, the legislation does not prevent bad actors from causing all manner of upsets. Case in point, the recent implosion of BHI Trust under the since-convicted and debarred financial adviser Craig Warriner.

And in the general consumer segment, second-hand car dealers have been under fire of late, as evidenced by two recent rulings by the National Consumer Tribunal. The tribunal lambasted one dealer for misrepresenting a vehicle’s accident record, and another for selling a vehicle with defects that should have been addressed pre-sale. This article never intended to go into detail on these claims.

At present, the worst cases of consumer abuses stem from the very councils and municipalities that are supposed to uphold citizens’ most basic rights.

South African rate- and taxpayers have to endure staggering inefficiencies across a wide range of services that they pay for and / or subsidise. It is hard to imagine a worse example of consumer abuse than your local municipality’s failures to collect trash, fill potholes, fix water leaks and maintain traffic intersections … until you hear about the R200 per month surcharge being foisted by the City of Johannesburg on the low- and mid-income families who buy electricity on a pre-paid meter.

Given this litany of consumer abuses, the question becomes: How can the public and private sector address the growing consumer trust deficit? This challenge seemed ‘top of mind’ in the recent PwC Voice of the Consumer Survey. Published in July?2024, the report offered a digest of views from 1?009 South Africans described as part of the young and employed consumer class. “Trust is crucial for consumers and for the companies that sell products and services to them,” the report leads. The concept is easy enough to demonstrate.

Trust in action

In financial services, you trust the short-term insurance cover you buy for your car to pay out following an accident or hijacking; in the financial advice context, you expect the product that an intermediary recommends for you to offer the appropriate balance of affordability and cover, in line with your risk profile; and in consumer goods, you should have peace of mind that your new, shiny kettle will boil water, repeatedly.

According to PwC, their global survey flagged six consumer trust imperatives, perhaps echoing the six TCF principles built into South African financial sector regulation. The following paragraphs share your writer’s immediate responses to each imperative.

First, companies should “navigate conflicting priorities in an economy with rising prices, meeting customers’ expectations of value while managing price increases effectively.” Huh?! This seemed like a roundabout way of just saying ‘manage inflation’ or ‘match price and value’; certainly, these short phrases will be easier to remember.

Second, PwC urged firms to “strike a balance with social media use, recognising its significance as a platform for sales and engagement, while being mindful of consumer concerns about its credibility”. Again, a bit of a mouthful that reads better as ‘maintain social media credibility’ or possibly ‘Bud Lite got it wrong’.

Trust imperatives and their practical applications

The third way to strengthen consumer confidence and trust was to “forge bonds with eco-conscious consumers by connecting their intentions to positive environmental impacts.” At first glance, this suggestion triggers a debate over whether the survey result was informed by participants or whether the survey was used to underpin some or other pre-existing positioning. If you had to summarise this point, then ‘connect with green consumers’ probably works; but is this really something that builds trust?

Point four, which your writer summarised as ‘humanise AI integration’, is contentious too. “Incorporate and experiment with artificial intelligence tools in business operations while maintaining a human element, especially in more complex and personal services,” PwC writes. Longer-term this suggestion hinges on whether firms can succeed in bridging the trust deficit that exists in consumer-firm interactions using chatbots or similar.

More cynically, you might reflect on whether you can address a trust deficit by getting your clients to believe the ‘lie’ that the AI you place in front of your consumers is human.

Moving on, point five holds that you should “safeguard personal data, while continuing to use it to offer personalised services and elevated customer experiences.” Your writer enjoyed this suggestion and would counter that ‘enhanced customer experience through secure data’ is a no-brainer in the context of GDPR and POPI. PS, you can Google these if you are not familiar with the acronyms.

Finally, point six was to “create and promote a product portfolio that reflects consumer desires for wellness, nutrition and more sustainable food production.” You could summarise this as ‘promote wellness and sustainability’ which works nicely in most sectors.

PwC imperatives versus TCF

Upon re-reading the above, this writer was unconvinced that the PwC six could trump the TCF six in delivering on fair consumer outcomes.

In a nutshell, the TCF principles embed fair treatment into corporate culture by ensuring products and services meet the needs of target customer groups; by providing clear and timely information throughout the customer journey; by offering suitable advice tailored to individual circumstances; by ensuring that product performance and service quality meet customer expectations; and by removing barriers for customers to change products, switch providers, submit claims or make complaints.

Dear reader, pay close attention: if you embed the six financial services focused TCF principles in your firm, then you can sell and supply your product or service into any market with peace of mind that your customers will be protected and well-served. And you will never have to read another ‘how to plug the trust deficit’ article again, ever.