John Cox explains why the Raising Standards scheme was set up and outlines what providers need to do to gain accreditation
When the long-term savings and investments industry commissioned consumer research into attitudes towards the industry and investing in the long term, it found lack of public confidence was one of the main reasons why people failed to make enough financial provision.
Only half of those polled expressed confidence in the industry or in buying financial products. Over one-third lacked confidence because they felt they had insufficient knowledge, or did not understand financial products. In addition more than one-third lacked confidence because they did not know who to trust.
Lack of confidence, understanding and trust are undoubtedly partly responsible for the current savings gap, estimated at £27m, although other factors, such as declining State provision, diminishing numbers of companies offering final salary occupational schemes and the demise of jobs for life, have also contributed to the savings problem.
The Raising Standards quality mark scheme was created some three years ago by the pensions, protection and investments industry under the auspices of the Association of British Insurers (ABI), to build consumer confidence, encourage people to make adequate long-term financial provision and help close the savings gap. The scheme is distribution neutral and comprises eight explicit and measurable standards that directly address three key concerns consumers have when buying financial product. The standards aim to solve the following problems:
• Lack of clear and comparable information ' products and services need to be fully described through easy-to-understand product literature that enables product comparisons.
• Inappropriate products ' consumers need the opportunity to reflect on their purchases and to test their suitability against individual needs and circumstances.
• Poor service ' consumers need to be provided with a high level of customer service before and after the point of sale.
Making the grade
Standards set out by the scheme are as follows:
• The key features document, illustration, with-profits summary and yearly statement must describe each product's features, benefits and costs by answering standard questions in a standard sequence.
• All charges must be presented in clear language, comprehensively, together in one part of the document and in a consolidated form.
• Customers with an investment product sold after accreditation must be provided with a yearly statement, incorporating prescribed information expressed in a standard way.
• The cooling-off period will be 30 days. During this time, accredited brands must refund the customer's original investment (for regular premium contracts) or the original investment less any fall in investment value (for single premium contracts) if the customer discontinues a policy.
• The first year ratio (FYR) must not exceed certain thresholds. The FYR demonstrates that brands retain new customers and do not penalise unduly those who cash in early.
• More than a set percentage of customers must be content with the service they receive.
• The key features documents and the yearly statement must state the arrangements in place to handle customers' questions.
• Customer satisfaction with the way in which complaints are handled must be measured.
Calling the shots
The standards are set by The Industry Standards Group (ISG) which consists of senior members of the insurance industry, chosen to provide a broad mix of skills, experience and sector knowledge. The Association of Independent Financial Advisers (AIFA) is also represented on the ISG.
Individual brands apply for scheme accreditation from the Pensions Protection Investments Accreditation Board (PPIAB). They must attain all eight standards, for each of their products within the scope of the scheme, to gain accreditation and earn the right to display the quality mark.
Products in scope include term assurance, non-profit whole of life, income protection, critical illness, annuities, long-term care, private medical insurance, hospital cash plans and dental plans.
The PPIAB is totally independent of the industry, being funded by fees charged for accreditation services, complementing the work of statutory and regulatory bodies.
The role of the PPIAB is to provide impartial and consistent accreditation services; encourage brands to become and remain accredited; ensure the standards are upheld by accredited brands; and promote and ensure the appropriate use of the quality mark.
The accreditation process is made up of the following stages:
• Helpdesk. Free advice and information on accreditation.
• Project set-up. Maximum PPIAB support at this important stage.
• Dry-run. PPIAB helps brands to prepare applications.
• Application: Assessment of formal application.
• Panel. Assessment verified by PPIAB board members.
• Monitoring. To ensure standards are maintained.
• Annual renewal. Brands submit formal re-applications to the PPIAB.
Everyone benefits
As well as increasing consumer confidence in the industry and encouraging the growth of the savings market, the scheme provides financial advisers with some specific benefits.
Under the scheme, brands must remove charging structures that are unclear and cause confusion and disillusionment.
The scheme's clear yearly statements not only ensure that the client has no sudden shocks at the progress of an investment, but also provide an ideal opportunity for renewed client contact. IFAs can also use the statements to make their own administrative arrangements easier.
The new with-profits summary, introduced by the scheme and recently endorsed by the FSA, explains how the with-profits product works and contains easy to understand information on bonuses. The summaries make it easier for advisers to explain a recommendation to purchase such products.
The first year ratio makes IFA justification of their recommended provider easier. The extended 30-day cooling-off period can be seen as a sign that the adviser has full confidence in the merits of the recommended action.
The scheme's two customer satisfaction standards have led to a renewed emphasis on back-office standards and on resolving IFA queries swiftly and accurately.
Brands representing some 80% of the market expressed their commitment to the scheme within one year of its launch, and well over one-third of the market has now attained accreditation. Brands that have attained accreditation are:
• Co-operative Insurance Society
• Eagle Star Life
• Norwich Union
• Prudential
• Scottish Equitable
• Scottish Widows
• UnumProvident
• Zurich Life.
A further third of the market are currently seeking accreditation or are in preliminary discussions.
Meanwhile, evidence of the successful delivery of improved standards for consumers, as a result of accreditation is becoming increasingly apparent to both consumers and advisers.
Accredited brands have spent millions adapting their operations to meet Raising Standards criteria. This has involved rewriting marketing material, product rationalisation, consolidation of IT systems and cultural changes to the way they conduct their business. All undertake to maintain or go beyond the standards so that they remain accredited under the scheme's annual renewal process.
Scottish Equitable, for example, believes the Raising Standards quality mark scheme will encourage all brands, accredited or not, to attain higher standards. It also believes accreditation is the best way to enhance consumer confidence in its products and services.
The brand has a wide product range sold solely through IFAs, many of which are complex products intended for sophisticated investors. It believes that one of the most positive tasks has been the introduction of the with-profits summaries that replace the opacity of with-profits funds with clear and comparable details on how these funds work.
The Raising Standards quality mark scheme is also at the forefront of Prudential's thinking. Prudential's Stakeholder offering was designed with Raising Standards in mind, a 30-day cooling-off period being part of Prudential's offering since Stakeholder's launch in April 2001.
The exacting requirements under the customer service standards also meant Prudential's measurement of customer satisfaction was directly influenced by the requirements of Raising Standards. This has resulted in the creation of additional customer service roles that closely support their clients.
Raising Standards work at Scottish Widows' began several months before it gained accreditation and required people from many different functions to contribute to the project. The company believes that some of its primary challenges have been cultural: getting the mind-set of managers and staff in tune with that of the end customer and, for example, dispensing with jargon.
With over a third of the market accredited and a further third seeking accreditation or in preliminary discussions, Raising Standards has succeeded in securing the commitment of a significant proportion of the market. Maintaining this momentum, ensuring demanding standards are attained and upheld, and raising consumer, adviser and regulatory awareness of our activities remain the PPIAB's key priorities.
The PPIAB believes market pressures will ensure that a growing proportion of the industry will seek accreditation. We also believe a voluntary approach has advantages over a statutory regime. These include greater flexibility and responsiveness to changes in the marketplace; the ability to focus on specific problems, such as customer satisfaction; and the commitment that the industry is prepared to make to the scheme it has created. In the current financial services culture of change, these advantages are crucial.
John Cox CBE is chief executive of the PPIAB
