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[The Wrap] What the heck is a good customer outcome?

It's one of the buzz phrases at the moment, providing good customer outcomes to people who buy financial advice or products. But what the heck is it?

Friday, August 16th 2019, 6:28PM 5 Comments

by Philip Macalister

Rob Everette

It seems to be no one really knows the answer. The question was put to the Financial Markets Authority asking them to explain what a good customer outcome for a KiwiSaver member looked like.

The simple answer is that the KiwiSaver fund had to do what the label on the tin said.

FMA chief executive Rob Everret said it's ensuring "that the customer clearly understands what they’re getting into and the product performs as expected and promised".

That's very simplistic and probably nothing near what KiwiSaver providers think is now considered a good customer outcome.

The more I thought about this the more I struggled with the answer. 

Cigarette packets these days are pretty clear around what the product does. And the pictures of rotten teeth, diseased gums, etc aren't very pretty.

So you could have a KiwiSaver fund which says what it does, but it may not be in the member's best interests. Just because it does what it says isn't a good customer outcome.

That suggests that making sure KiwiSaver members actually understand what's written on the tin is a key part of the problem. Again good examples from the fast moving consumer goods sector are country of origin and lists of ingredients. 

But then again I listened to The Co-operative Bank chief executive David Cunningham at the Future of Financial Services conference a couple of weeks ago.

His line was that this "conduct and culture" issue is actually a product issue. His proposition was that banks have created poor products which don't provide good customer outcomes. But are more about bank profitability.

One of his three examples was the savings accounts where customers basically get no return if their balances are below a certain level, but once the balance gets above a certain level these are more rewarding and benefit the customer.

Coming back to KiwiSaver I doubt there is a manager which says making sure the funds do what's on the label is sufficient to pass the good customer outcome test.

Indeed at ASSET's recent Round Table our managers said it includes understanding the customer's position and making sure that it is appropriate was a key point. There were many other ideas included in what made a good customer outcome.

I had this discussion with an insurance company too. They felt it was very unclear what the FMA considered a good customer outcome. Is it just making sure a claim is paid if it meets the policy wording? They didn't know.

If the regulators are going to keep insisting on "good customer outcomes" (and no one would say that's not an appropriate thing) then they need to do a lot more work explaining what they mean.

Tags: Co-operative Bank David Cunningham FMA KiwiSaver Opinion Rob Everett

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Comments from our readers

On 19 August 2019 at 10:49 am MattW said:
Long time reader first-time commenter here.

Agree wholeheartedly with the message of this article.

As an RFA who had a claim/ dispute against me for a Medical Policy that failed to pay (due to client non-disclosure). The claim was 'partially upheld' by Fscl. I find this area V interesting.

The claim was for something 'relatively' minor, but the point is it didn't do the job as per the clients' expectations. I can accept this.

However had he come down with say Cancer and needed $50k's+ of non-pharmac treatment his existing policy would have failed miserably. In this case I would have done the right thing.

And had I failed to switch the cover (which was implied I should not have done) in this later example could he therefore rightfully have a crack at me in this instance?

It seems the client will always 'be able to have their cake and eat it too'
On 20 August 2019 at 6:19 pm JPHale said:
@Mattw that's an unfortunate situation. And I agree if the issue was one of no prior cover under the wording then the new cover is the better answer, but I don't think that was the case in your comment.

I guess the issue boils down to a two-fold one. Did you clearly explain the disclosure requirements and the non-disclosure risk? And was this documented? It's this piece that I’m seeing the noise about with process, not written down didn't happen...

That said, the flip side question; if the client disclosed the condition and it was excluded, would they have accepted the exclusion and moved the cover anyway? If so then there should be no complaint.

Which speaks to the issue of the removal of choice, at claim the choice has been removed, and coulda, shoulda, woulda is the unhelpful commentary.

There's a lot of deep process review advisers need to think about. And my discussions today are suggesting that the eye isn't on the key issue.

Education is one thing, but it has 2 1/2 years before it's an issue, the real issue is how many advice businesses will be compliant on the rest come 1/7/2020?
On 20 August 2019 at 6:23 pm JPHale said:
Good customer outcomes, is something akin to driving down the road using the rearview mirror.

You only know one you see the outcome, which is hard to do without a crystal ball.

One of my recent articles here talked about the risk approach to this, damn hard to meet based on where most advisers are at today...
On 21 August 2019 at 12:31 pm Tash said:
The concept of good customer outcomes is entirely subjective and not in any way a sensible or acceptable measure of an adviser's recommendations. The only issue is whether or not the adviser gave the recommendation in accordance with their terms of engagement, the Code and with due care, diligence and skill.
On 26 August 2019 at 9:59 am all hat, no cattle said:
Phil says: "If the regulators are going to keep insisting on "good customer outcomes" (and no one would say that's not an appropriate thing) then they need to do a lot more work explaining what they mean."

I say it's not an appropriate thing. It's vague, ambiguous and useless.
It's also nowhere in the FSLAA or the Code. "Good Outcomes" is a new invention, it's use so far limited to a couple of recent reports, and Mr Faafoi’s speeches.

Perhaps that's the point? If it can't be defined, there is no measure for it's success (or failure), so it can't be attacked.

Number of times "outcome" appears in FSLAA: Zero
Number of times "outcome" apears in code: Zero (actually 9, but all relate to CKS in part 2, and every time is preceded by the word 'qualification").
Bank Conduct and Culture report 11/2018: 85
Life insurer conduct and culture report 01/2019: 104

I went to an event where 2 people from the FMA presented. I asked them: what is a good outcome?
Their answer was quite different to Mr Everett's. It took about 15 minutes, half a whiteboard, involved many different aspects/ideas, and a venn diagram.
And nobody came away feeling like they knew the answer, let alone could describe it in 1 sentence.

It's becoming a popular idiom. And worse, what we are seeing now is different interests jumping into this definition vacuum and using the term "good customer outcome" or some variation, in their own way for their own purpose. Such as an insurer using it when promoting their latest product enhancement…

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