Winning formula

In last month's issue, we provided an introduction to the Raising Standards scheme, its rationale, structure and benefits.

Here, we provide more detail on the assessment process and some of the scheme's benefits IFAs can communicate to clients.

Raising Standards' accreditation is by brand. For example, Zurich Life and Eagle Star Life, brands under the Zurich Financial Services group, gained accreditation separately in the initial wave of accreditations.

The industry believes that consumers relate more to brands than products. Additionally, the scheme's standards go beyond product-related issues, encompassing the way in which brands go about their business and treat their customers.

The scheme covers products bought by individuals to meet long-term savings and protection needs. These include individual life and pensions products; retail collective investment schemes, such as unit trusts and Isas; and individual protection products that are written as long-term business.

At present, group products are outside the scope of the scheme, as the purchaser is usually different from the person who benefits and Raising Standards is an end-customer focused scheme. However, where there is a closer match between the purchaser and the beneficiary, as is the case with executive pension plans and stakeholder pensions, group products do fall within the scheme.

The following protection products are within the scope of the scheme:

• Term assurance.

• Annuity (unit-linked and with-profit).

• Non-profit whole of life.

• Self-invested annuity.

• Income protection.

• Long term care (bond-based).

• Standalone critical illness.

• Long term risk (immediate care).

• Annuity (immediate, temporary and deferred).

• Long term care (risk-based).

Currently, private medical insurance, hospital cash plans and dental plans fall outside the scheme because they are viewed as general, not long-term, protection products.

The right paperwork

For each of the products within the scope of the scheme, brands must submit three documents to the PPIAB for accreditation: the key features document (KFD), illustration and yearly statement. Each document must pass its assessment for a brand to gain accreditation. For with- profits products, the brand must also submit a new document, introduced by the scheme, called the with-profits summary.

Each of these documents must include prescribed standard questions or headings, in a standard sequence. KFDs and yearly statements must also include full contact information, and the KFDs must set out what to do if the customer needs to complain. All in-scope documents must pass a clear communications test.

Recent IFA and consumer research has shown that many see the new-style documents as an important benefit.

The scheme applies to all new business, with the exception of its standards on customer satisfaction. These take into account both new and existing customers. The Industry Standards Group (ISG) the scheme's standard-setters, decided it was important to get the scheme up and running and delivering benefits at the earliest opportunity and that wider parameters would have caused a delay.

Brands are awarded accreditation if they meet eight tough standards, which deliver three consumer promises. The promises respond to key concerns consumers have when buying financial products, identified from research carried out by the industry during the development of the scheme. The promises focus on the following areas:

• Provision of clear and comparable product information.

• Appropriateness of the products bought.

• Customer service before and after sale.

The first three standards relate to the first promise. Standard one ensures that in-scope documents describe the features, benefits and costs of each product. Standard two ensures that charges are presented clearly, described comprehensively in one part of a document and in a consolidated form. In addition, the overall impact of charges must be illustrated in a reduction- in-yield calculation, at three defined periods, in the key features document or illustration.

Certain product-charging structures have been discontinued under standard two, such as bid-offer spread and rounding. These must be phased out on all products open to new business by 1 October 2004. Products launched after accreditation must not include these discontinued charges.

Standard three involves yearly statements and ensures that customers, with investment products sold after accreditation, are provided with clear statements at least once a year.

Standard four and five relate to the second promise ' the appropriateness of the products bought. Standard four provides an extended cooling-off period of 30 days to accredited brand customers, except where this is not permitted under regulation.

Standard five involves a new calculation called the first year ratio. This goes beyond the FSA's persistency measure, calculating the cost suffered by customers who lapse their investment in the first year as a proportion of the total first year new business premiums received.

The final three standards respond to the third promise, based on customer service. Standard six involves an annual customer satisfaction survey of brands that ensures a specified percentage of new and existing customers are satisfied with the service they receive.

Standard seven ensures that accredited brands state the arrangements in place to handle customers' questions in the key features document and yearly statement. The key features document must also state how customers can complain.

Finally, standard eight focuses on complaints management. This standard is currently being developed and will be announced soon.

Accreditation is mainly provided by the PPIAB's in-house team of consultants. Only work on the first year ratio and customer satisfaction surveys is outsourced to PPIAB-designated agencies. All the consultants have worked in the financial services for many years, but now work totally independently to provide impartial accreditation services.

There are five stages in the PPIAB's accreditation process. The first three are not obligatory:

• The helpdesk.

• The set-up.

• The dry-run.

• The formal application.

• The panel stage.

After accreditation, the PPIAB monitors accredited brands. on a regular basis All accredited brands have to go through an annual renewal process to retain their accredited status. The PPIAB's helpdesk answers brands' questions on the accreditation process and the scheme's standards. If the brand decides to go ahead, it can enter a set-up stage that helps to ensure that it makes all the necessary preparations for accreditation, therefore improving the efficiency and effectiveness of the whole process. Dry-run is the next stage. Brands begin to develop their product documentation and to work with the PPIAB's designated agencies on some of the standards.

Taking action

At the application stage, the PPIAB stops consulting and starts formally accrediting. Brands submit documents for the PPIAB to assess and a PPIAB accreditation consultant produces a report on their assessment. The consultant will then convene a panel, comprising PPIAB board members, to which they must present their assessment. Finally, the brand is informed on whether the panel has decided to provide accreditation.

Monitoring occurs throughout the year, with the PPIAB's accreditation consultants. This involves reviewing accredited brands' documents; checking that brands have correctly used the quality mark - the symbol for accredited status and following up any scheme-relevant complaints about accredited brands.

The annual renewal follows a similar format to first-time accreditation. All new and changed in-scope documents are assessed, as are a large sample of the previously accredited documentation. The PPIAB also goes through all yearly statements. Finally, the customer satisfaction survey and the standard on the first year ratio, measuring new business retention against exit penalties, are repeated. If the scheme's standards haven't been maintained, a brand has its accreditation withdrawn. Annual renewal announcements commence in October 2002.

Raising Standards ensures clients receive clear information on financial products. This is also viewed as a major IFA benefit ' saving advisers time understanding and comparing the differing product features, and explaining products to clients. Layout, comparability and plain language all help to ensure clients don't miss crucial facts, and make informed choices about their long-term provision. The 30-day cooling off period ensures customers stay in control of their purchase decision. The likelihood they will change their minds is already less because of better pre-sale information. Clearer yearly statements allow clients to monitor their product's performance, and it's forecasted value, and regularly think through whether they need to make changes to their provision. They should be equally helpful to intermediaries, providing IFAs with the opportunity to contact clients year-on-year or more frequently.

Finally, customers and intermediaries ' as customers in their own right ' should enjoy high quality customer service from accredited brands. The first year ratio standard ensures that new customers are assured of a fair deal, while the annual surveys ensure that brands with bad customer satisfaction levels fail or lose their accreditation.

Self-regulation

Launched only two years ago, Raising Standards is already providing benefits that are steadily gaining recognition both within and outside the industry. Most recently, the scheme has demonstrated that it is in line with regulatory thinking, it is already implementing much of what is contained in various financial reviews, and providing tangible evidence that the long-term savings and investment industry can regulate itself.

With IFAs still the main distributors of pensions, protection and investment products, the scheme is keen for advisers to recognise the positive implications Raising Standards has for them. Brands will inevitably benefit from improvements in documentation and customer services; and customers will undoubtedly obtain a fairer and clearer deal.

However, intermediaries will also benefit from a more effective, transparent and competitive operating climate that encourages consumers to have more confidence in financial services and to invest in their future.

Justin Harper is an accreditation consultant for the PPIAB