Consumer awareness of the FSA and financial regulation

Transcription

1 Consumer Research 88 Financial Services Authority Consumer awareness of the FSA and financial regulation Fieldwork conducted by TNS-BMRB

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3 Consumer awareness of the FSA and financial regulation 2012 report

4 Acknowledgments We would like to thank TNS Research International, who carried out the field work on behalf of the FSA in The research programme was managed and this report was written by Tim Burrell in the Market Research team (Research and Economic Analysis, Policy, Risk and Research) at the FCA. Tel: , The report and the survey questionnaire can be downloaded from our website.

5 Contents 1 Executive summary 6 2 Background 9 3 The survey 10 4 Awareness of the FSA Responsibilities of the FSA 22 5 Awareness of regulatory activities 25 6 Attitude to risk 31 7 Treating customers fairly Product switching Complaint handling Seeking financial advice 40 8 Financial crime Actions taken to prevent financial fraud 50

6 1 Executive summary This report contains results from the 2012 Financial Services Authority (FSA) Consumer Awareness Survey. The FSA carried out this survey out annually from 2003 to It enabled the FSA to identify risks and take appropriate action to mitigate risk and improve performance. In this paper we summarise the main findings. Financial product holding 86% of adults have either a basic current or savings account. Of these, 77% have a bank account, with 60% (also) having a savings account; 24% have an ISA (cash or equity) and 22% have a mortgage of some sort (endowment, repayment or interest-only). Fewer financial products are held compared with previous years. It seems that consumers are opting to reduce the risk to their savings and are keeping their money in low-risk accounts there has been a 12% increase in those who own a low-risk account and no other financial product. Financial product ownership is greatest among year olds and saving and pension product take up among year olds is relatively low. Awareness of the FSA The combined prompted and un-prompted level of awareness of the FSA was one third (33%). Consumers were most aware during the buying process and, in some ways, through owning products, though the FSA brand does not resonate. Overall awareness of the FSA was highest among the (48%), (53%) and (47%) age groups, and over half of the community have either prompted or unprompted awareness of the FSA. Knowledge of the FSA was highest among those who own more risky financial products, such as direct ownership of shares (71%) and equity ISAs (64%). FSA responsibilities The responsibilities that consumers most commonly recognised as having been carried out by the FSA were ensuring that firms treat their customers fairly (33%) and preventing mis-selling of financial products (26%). The number of people that mentioned the prevention of mis-selling increased by 4% in 2012, perhaps due to the publicity of PPI mis-selling. Consumers are more likely to mention conduct issues, presumably because they are more obviously consumer facing. The only prudential reason mentioned was ensuring that financial firms have appropriate funding reserves, which was mentioned by 8% of respondents.

7 FSA effectiveness Nearly three-fifths (57%) of consumers were either very or fairly confident that the FSA effectively regulated the financial services industry. Those who were either very or fairly unconfident increased from 18% in 2011 to 22% in It is highly likely that was driven by high-profile enforcement cases against financial firms and individuals. Over half knew that the FSA carried out enforcement action and 49% were aware of the authorisations function of regulation. There was greatest confidence among adults that firms followed FSA rules for authorisations. Risk profiling For all adults there is a continuing shift to risk to be slightly more risk averse. Those not willing to take any risk with investments have grown by 3% from 2011 this is a 6% increase from The number of people prepared to take higher risks to gain higher returns has remained fairly steady (7% in 2012 compared with 8% in 2011). This is not surprising given the uncertainty surrounding financial markets. Those that were aware of the FSA continue to be the most risky (and are also most likely to own risky products). Treating customers fairly and problems with financial service providers 8% believe firms are better at treating customers fairly, while 7% feel firms have got worse. The majority (78%) believe firms have not got better or worse at treating customers. 5% reported that they had been treated unfairly in the previous 12 months. The leading causes of unfair treatment are customer service - which includes long queues in a branch or not being able to get through to someone on the phone - and complaint handling. Regulatory issues include delays in transferring money, PPI issues and being pressed hard to buy something which they did not want. 54% of consumers were either very or fairly confident in firms resolving a complaint. Financial advice 13% of consumers had received financial advice in the previous 12 months. This is a 4% reduction from Over 90% of those that saw an IFA and 80% of those that received advice from a bank or building society were either very or fairly confident in the advice.

8 Financial crime Nearly a fifth of consumers reported being approached by some type of fraudulent activity in the past 12 months. The most common types of fraud mentioned were being asked to pay a lump sum up front to receive a greater fee in the future, or being asked to confirm an individual s bank details. The most common method for contacting consumers was via . This contact is less personal and is easier to delete and treat as spam. Only a fifth of consumers reported the attempted fraud. And the most commonly mentioned place to report an attempted fraud was an individual s bank.

9 2 Background This report contains results from the 2012 Financial Services Authority (FSA) Consumer Awareness Survey. This was an annual study that first took place in The FSA used results from this survey, along with other survey and administrative data to assess performance, identify risks and take appropriate action to mitigate risk and improve performance was another year where there was great focus on the financial services industry. This was a result of the general focus on the global economic climate, and various scandals that affected the industry, such as PPI mis-selling. These factors affect consumer knowledge of regulation and the consumer attitudes when dealing with financial institutions. Trust and confidence in financial services is critical to maintaining confidence in the UK financial system; the level of consumer confidence in the financial system is an indirect proxy indicator of how well the regulator has performed. The FSA tracked recognition levels for several years. Awareness or recognition of work in relation to consumer protection and consumer information may help consumers make more informed financial decisions and increase their financial capability and confidence. If consumers have unrealistic expectations of what the regulatory regime might provide, then this may shape their attitudes and behaviour inappropriately. This survey covers awareness of the FSA and confidence in regulation. It includes product ownership, whether firms treat customers fairly and consumer exposure to financial crime.

10 The survey The research presented in this report is based on results from an omnibus survey conducted on behalf of the FSA by TNS Research International during March The survey was of a representative sample of 2,025 adults from across Great Britain, interviewed face-to-face in their own home. The sample was based on 149 sampling points. TNS applied a limited amount of corrective weighting to ensure that the sample was representative of the British population in terms of known population data on age, sex, social class and region. This study was important to track key strategic indicators such as awareness of the regulator and trust in its abilities, measures of Treating Customers Fairly and some elements of financial crime. Regulatory priorities change over time as a consequence of changing markets as dictated by firms or by consumers as they change their actions as a response to firms or the regulator. For this reason the content of the survey is continually reviewed and updated. The FSA also carried out quarterly studies on trust and confidence in the financial industry and problems reported by consumers. Some of this content was removed from the annual survey to avoid duplication. Results from the quarterly studies are not included in this report. Below is a summary of the changes: questions were removed that covered which markets were regulated by the FSA; questions were removed on knowledge of the FSA s non-zero failure regime; general TCF questions were removed; and financial crime questions were updated.

11 3.1 Consumer engagement Understanding consumers informs effective regulation. This is even more important under the Financial Conduct Authority (FCA), where there is a greater focus on reacting to consumer needs in a timely way. Understanding the behaviour, attitudes and perceptions of consumers especially those who are buying or using financial products and services; and who may come into contact with the regulator informs effective policy and decision making. Understanding consumers helps us to know who is most affected by shocks to financial markets and might be affected by changes in our policy; and it helps us understand who is not engaged with financial services. Using this information can help us determine what drives behaviour and attitudes. As well as the results from this survey, the FSA used other sources to measure levels of product ownership such as other external research and regulatory returns such as Product Sales Data (PSD). The survey asked consumers which financial products they own, if any, from simple bank accounts to complex investment products. It also included insurance products and pensions. 77% of consumers have a bank account, with 60% (also) having a savings account (86% have at least one or the other); 24% have an ISA (cash or equity) and 22% have a mortgage of some sort (endowment, repayment or interest only). Figure 1 Savings and investment products owned all adults Bank account 77% Savings account 60% TESSA or cash ISA 26% Repayment mortgage Premium bonds Personal pension No financial product 17% 15% 15% 11% Direct ownership of shares Equity, share or unit trust ISA 7% 7% Mortgage endowment Interest-only mortgage 3% 3% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90%

12 The results show that less financial products were held compared with previous years. This could be due to a number of factors. For investment products it could be due to a reduction in wealth levels, meaning that people had to spend money previously held in investments, or a lack of funds to invest due to lower disposable income. With interest levels low there may be a reluctance to save. In terms of mortgages there are the same affordability issues and also increased difficulty in getting a mortgage due to the increased scrutiny of the market, which has led to less availability of 100% mortgages, greater requirements to secure a mortgage and higher deposit levels required. A reason for decreased ownership of complex investment products may be that consumers are opting to derisk their savings and are keeping their money in low-risk accounts there has been an increase of 12% in those who own a low risk account and no other financial product. The most commonly held insurance products are home contents and/or buildings insurance (62%) and motor insurance (57%). Figure 2 Insurance products owned all adults Contents and/or buildings 62% Motor 56% Life 39% Travel 20% Health 15% Mortgage protection life insurance Pet Accident, sickness or unemployment 9% 8% 10% 0% 10% 20% 30% 40% 50% 60% 70% * Health insurance covers income protection and medical bills cover There was a general increase in insurance products held compared with 2011, particularly with home contents and/or buildings insurance up to 62% from 48%, and life insurance, up 7% from 32% in A general increase in job-related insurance is possible due to fears over job security, which

13 can lead to insecurity over whether future payments and bills can be made, but there was no increase in mortgage protection insurance or accident, sickness or unemployment insurance. Understanding the different types of consumer who own or do not own financial products can help us identify vulnerable groups that may be excluded from financial services for some reason, or who are not aware of the services available to them. For us to effectively regulate financial markets we needs to know the type of people affected most by changes in our initiatives and policy decisions, as well as knowing which consumers are most at risk to economic shocks or who could become victims of financial fraud and be most at risk from small changes in the provision of financial products. Knowing who the main consumers of financial services are informs us where to concentrate our efforts when communicating messages and can also alert us to the highest at-risk population areas. This can affect future strategies for consumer protection. The following section covers product ownership by demographics such as age and sex and also by Experian Financial Strategy Segments (FSS). Table 1: Product ownership by age and sex All adults Male Female Base Unit trusts, equity ISA or personal equity plan % (PEP) Personal pension/freestanding additional voluntary contribution % (FSAVC) 1 Direct share ownership % Bonds or gilts % Mortgage (endowment) % Mortgage (repayment) % Mortgage (interest only) % Second home/buy-to-let property % Own a low-risk financial product (e.g. current or savings accounts) but none of the other categories % Own no financial product % Occupational pensions are not covered in this survey as they are not regulated by the FSA.

14 Table 1 shows very little difference between product ownership by gender. There is slightly greater ownership among men than women. Unsurprisingly, product ownership is highest among year olds. For these people, buying power is at its peak due to higher average earnings and need for products. It is also due to life-stage: job security and family considerations are such that many invest in financial services. There are very low levels of product ownership among year olds. A greater proportion of this age group (90% compared with 75% in 2011) only own a low-risk financial product. This is likely to do with the greater inability of this age group to secure work and to save, along with lower incomes and rising costs of living due to the economic climate, plus difficulties getting on the housing ladder. The figures continue to show areas where ownership is low: pensions (5%) and ISAs (5%). Younger age groups are not currently saving in ISAs or taking out private pension provision and one of the goals of pension reform is to encourage private pension provision and for consumers to adopt a saving culture from a young age. The survey does not identify how many people are enrolled in employers contributory pension schemes. The FSA used Experian Financial Strategy Segments (FSS) 2 in an effort to better understand consumers of financial products. This classification provides 13 household groups based on the type of financial product or service bought. FSS groups Group % of UK Brief description households covered A: Successful start 6.33 Young professionals in their twenties and thirties, mostly single and child-free. All earn good salaries and are progressing well in their careers, and with few responsibilities except the rent or mortgage, they have considerable disposable incomes. B: Happy housemates 7.35 Young people in the early stages of establishing their careers and setting up home. Most live in rented accommodation, either on their own, cohabiting or sharing with friends. C: Surviving singles 6.07 Young people on low incomes, living alone or sharing with friends. Most are single, some as a result of separation. Some are bringing up children on their own. D: On the breadline 8.28 Young lone parents and single people who earn low incomes and live in the lowest value council or housing association accommodation. A high proportion of households have no fulltime earner and the majority pay no tax. E: Flourishing families 8.00 Couples earning good incomes, with young or school age 2

15 Group % of UK households covered Brief description children. They own quality family homes with high mortgages, so although they are well paid, disposable income is limited. F: Credit-hungry families 9.18 Dependent on credit to fund their lifestyles. Their incomes are below average and a good proportion of the money that comes in each month is taken up by existing debt. G: Gilt-edged lifestyles 4.73 The wealthiest sections of society. They earn the highest incomes and live in the most expensive homes. They are directors of large companies, senior managers or business entrepreneurs and tend to be couples in their forties and fifties with older children. H: Mid-life affluence 6.36 People in their late forties and fifties, with good incomes and low financial commitments. Their children are mostly grown up, though many are still in the family home. I: Modest mid-years 6.50 Couples in their forties and early fifties with financially dependent teenage or older children living in the home. They may also be looking after an elderly relative at home. Incomes are below average but households with more than one earner are comfortable. J: Advancing status 7.83 Financially comfortable couples in their late fifties and early sixties. A few have taken early retirement but most are still working. K: Ageing workers People in their later working years, living in low value terraces and semis. Some older children still live at home and contribute to the family income, but salaries tend to be low and total household income remains limited. L: Wealthy retirement 8.78 Couples and singles enjoying their golden sunset years. Decades of careful money management have paid off and the comfortable retirement they planned for has become a reality. M: Elderly deprivation 9.92 Pensioners who are almost completely dependent on the state for their income it is important that they claim all the benefits to which they are entitled.

16 Table 2 shows ownership of selected products by FSS classification. Table 2 Product ownership by FSS classification Own a simple product (nothing else) ISA Personal Pension Mortgage Life insurance Successful start % Happy housemates % Surviving singles % On the breadline % Flourishing families % Credit-hungry families % Gilt-edged lifestyles % * Mid-life affluence % Modest mid-years % Advancing status % * Ageing workers % Wealthy retirement % Elderly deprivation % *treat with caution due to low base Base Table 2 shows that the groups at the lower end of the income scale, such as happy housemates and those on the breadline, are most likely to own simple financial products only. Conversely, those most likely to own an investment product, in this case an ISA, are the more wealthy segments, such as the mid-life affluence category and advancing status. A similar trend occurs for mortgages and the segment most likely to own a mortgage is flourishing families. In terms of life insurance, again flourishing families are the most likely to own this product, unsurprising given their life-stage, while ownership is lowest amongst happy housemates and those on the breadline.

17 3 Awareness of the FSA Some consumer knowledge of the type of financial regulation that takes place can provide reassurance and confidence to the market place. Knowledge of regulation and the responsibilities of the regulator in conjunction with and an understanding of consumers own responsibility can aid effective decision making. It also provides consumers with the knowledge to know where to turn if things do if they have a complaint. This chapter looks at awareness and what consumers believed were the responsibilities of the FSA. Other aspects of regulation and measures of consumer knowledge were monitored by the FSA and are discussed further in the report. Other elements of understanding where potential problems may arise are discussed later in the report such as consumer understanding of product risk (Chapter 6), complaints procedures and problems with financial services firms (Chapter 7). Consumers could have become aware of the FSA in a number of ways. Buying products or the communication of product or service changes by financial services companies which may reference the FSA role are one method in which consumers might be made aware of the FSA. Other methods include being sign-posted through the internet or hearing about the FSA in news stories. Public awareness that regulation takes place (especially in relation to fines and enforcement action) may increase confidence in financial markets. Alternatively, stories on fines to firms or individuals may reduce confidence if all consumers hear about is firm misbehaviour, and large fines being given out as a response to harm caused to consumers. It is perhaps more important that consumers know where to find information if it is required. As well as trusting in financial services, it is important that consumers know who to contact if they have a problem or query about financial regulation, including complaints and redress.

18 Figure 3: Consumer level of awareness of the FSA since 2003 Awareness of the FSA overall Awareness of the FSA as a financial regulator among people living in Great Britain aged 16 and over (all respondents) 100% 80% 37% 37% 47% 41% 46% 47% 44% 45% 43% 46% 60% 40% 20% 18% 19% 16% 14% 14% 14% 10% 9% 18% 16% 15% 19% 17% 14% 16% 15% 16% 6% 7% 7% 6% 8% 14% 11% 13% 16% 15% 16% 6% 14% 12% 14% 15% 15% 13% 18% 21% 20% 20% 19% 0% Aware of FSA without prompting Aware of FSA with prompting Aware of other financial regulators Assume a regulator exists No knowledge of a regulator The combined prompted and un-prompted level of awareness of the FSA was one third (33%). It has been around this level throughout the existence of the FSA. As mentioned previously it is not important that the consumer is aware of the regulator per se, but that there is a regulator that looks after consumer protection. In addition, it is essential that the messages reach consumers and are understandable. Consumers should also know where to turn if they need more information or assistance. There was been no marked increase in awareness of the FSA over time, not even during the financial crisis of 2006 and beyond. As discussed in previous reports one reason is that when most people think of the financial crisis they associate it with the Bank of England or government rather than the FSA. The FSA was rarely quoted in the tabloid press, but was more likely to be referenced in broadsheet newspapers, financial, business and other specialist media it did not have an active marketing campaign to increase awareness. Its logo and name was on many financial documents given to consumers at the point of purchase, so a number of people were only made aware of the FSA when purchasing a financial product and were only briefly aware during the buying process. Awareness of regulation by age reinforces the theory that consumers were aware of the FSA during the buying process and, in some ways, through owning products. Overall awareness of the FSA was

19 highest among the (48%), (53%) and (47%) age groups, and over half of the community had either prompted or unprompted awareness of the FSA. This was the trend for a number of years. Figure 4 Awareness of regulation by age 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 69% 17% 3% 11% 45% 15% 6% 34% 29% 31% 31% 17% 6% 48% No knowledge Assume there is a regulator Named or are aware of other financial regulatory bodies but not the FSA Prompted and unprompted FSA recognition 11% 5% 53% 17% 5% 47% 51% 16% 7% 26% The level of an individual s familiarity with financial regulation will be determined by a number of factors. In particular, what need or desire they have to interact with the financial services market. Apparent knowledge of the FSA was higher among those who own financial products and, by association, with people aged who are more likely to be purchasing financial products. This could be due to increased ability to purchase products within this age group, as well as requirement for families to plan such as insurance and pensions. The notion that the name of the FSA did not stay in people s minds is reinforced by the low level of awareness of the 65+ age group. This group own financial products, but are unlikely to have recently been involved in the buying process, so they no longer have a requirement to engage with the regulator or deal directly with financial firms. As in previous years, it is not surprising that consumers owning a more complex financial product (something other than a bank or savings account) are far more likely to have been aware of the FSA

20 than those with no financial product or who own just a bank or savings account. The difference is quite dramatic, with around 70% for some product groups compared with 25% for people with only a simple account, and 10% for those who do own any financial products. This may be appropriate given consumer needs, but no knowledge may mean that individuals are missing out on the benefits some products can provide. Table 3: Awareness of regulation by type of product held Unit trusts, equity ISAs or PEPs FSA prompted and unprompted Name or awareness of other financial regulators Assume there is a regulator No knowledge Base % Personal pension/fsavc % Direct share ownership % Bonds or gilts % Mortgage (endowment) % Mortgage (repayment) % Mortgage (interest only) % Second home/buy-to-let property % Own a low-risk financial product (e.g. current or savings accounts) but none of the other categories % Own no financial product % Knowledge of the FSA was highest among those who own more risky financial products, such as direct ownership of shares (71%) and equity ISAs (64%).

21 Awareness of the FSA by consumer segment (FSS group) largely backs up the findings above. Table 4: Awareness of regulation by FSS group FSA prompted and unprompted Name or aware of other financial regulators Assume there is a regulator No knowledge Successful start % Happy housemates % Surviving singles % On the breadline % Flourishing families % Credit-hungry families % Gilt-edged lifestyles % * Mid-life affluence % Modest mid-years % Advancing status % * Ageing workers % Wealthy retirement % Elderly deprivation % *treat with caution due to low base Base Table 4 again reinforces the fact that those in the market for products, and those who own products were more likely to be aware of the FSA. Those in the higher income groups who own financial products and who engage with the financial market more regularly had more knowledge of the FSA. Particular differences across the FSS groups include: Groups with the highest awareness include advancing status (53%*), mid-life affluence (51%), flourishing families (51%) and gilt-edged lifestyles (43%) these are the wealthiest segments and those more likely to own higher-risk products. Conversely, those who are not in the market for products have little knowledge. They are most likely to be in rented accommodation and not own a mortgage, and be reliant on benefits and not own insurance or investment products. Groups with no knowledge include those on the breadline (66%), elderly deprivation (58%), happy housemates (58%) and ageing workers (47%). These groups are on lower incomes and are less likely to own financial products.

22 There is relatively low awareness among credit-hungry families, who it could be assumed should be aware of their levels of protection around financial products. There are some differences from the previous year data. Awareness among surviving singles has dropped from 43% to 28% and there has also been a drop for the elderly deprivation group 14% compared with 33% in A greater number of ageing workers are aware 29% compared with 20% in Responsibilities of the FSA Being aware that the financial regulator exists can reassure consumers. But being aware does not necessarily mean that a consumer is aware of the what the duties of the regulator are, and in some cases more importantly, are not. Problems in financial markets can occur when consumers assume that they do not have personal responsibility for certain actions, or confidence in the regulator can be eroded if the consumer believes that the regulator is not performing as well as they think they should. An example of this is bonuses awarded to staff in the financial sector. While the regulator is responsible for ensuring that firms hold enough funds to meet regulatory requirements, there are no direct regulatory rules for how banks use their profits in relation to bonus payments bonus levels are a wider social policy issue. Consumers knowledge ranged from: familiarity, with some quite precise knowledge about what the FSA required from firms and the protections to consumers that were in place; a more vague understanding that some form of watchdog safeguards consumer interests; or no knowledge at all. Understanding consumers thoughts on the responsibilities of the regulator can help shape financial services policy and communications strategies. If consumers think that the regulator is responsible for things it is not, it may suggest a gap in regulation or a lack of consumer understanding.

23 Figure 5 What are the main responsibilities of a financial watchdog? Treating customers fairly 33% Prevent mis-selling 26% Ensuring only appropriate people firms can operate Prosecuting firms/individuals Consumer information Monitoring fiancial promotions 14% 12% 10% 12% Compensation for consumers Ensuring firms hold appropriate funds 8% 8% Consumer education 5% 0% 5% 10% 15% 20% 25% 30% 35% * Base = All those aware or assume there is a regulator (1103) The responsibilities that consumers most commonly recognised are ensuring that firms treat their customers fairly (33%) and preventing mis-selling of financial products (26%). The number of people that mentioned the prevention of mis-selling increased by 4% in 2012, perhaps due to the publicity of PPI mis-selling. Consumers are more likely to mention conduct issues, presumably because they are more obviously consumer facing. The only prudential reason mentioned was ensuring that financial firms have appropriate funding reserves. This was mentioned by 8% of respondents. Previous research has shown that those aware have better knowledge of what the responsibilities of the regulator are. This is enforced by Table 5, which looks at what people mention as the main responsibilities of a financial regulator by their awareness.

24 Table 5: Awareness of FSA and its duties Treating customers fairly FSA prompted and unprompted Name or awareness of other financial regulators Assume there is a regulator Base % Prevent mis-selling % Ensuring only appropriate firms can operate Prosecuting firms/individuals % % Consumer information % Monitoring financial promotions % Compensation % Ensuring firms hold appropriate funds % Consumer education % As well as understanding what consumers think are the responsibilities of a regulator, it is also useful to understand what products or markets the public believe are regulated. This informs the regulator of consumer expectations and knowledge.

25 4 Awareness of regulatory activities Confidence in the regulator and financial firms can be driven by a number of factors not just through the actions of the regulator, but by the actions of financial institutions, of governments that affect the economic climate at home and abroad, and the actions of consumers themselves. If there is a lack of consumer confidence then the regulator should identify what is causing this and target communications to specific groups of consumers to increase awareness and recognition, and thereby hopefully increase confidence in the financial system. It could be that confidence is affected by risks that can be directly addressed and where action is required. Confidence in the effectiveness of the regulator is, understandably, linked to the national and global economic outlook including issues out of the direct control of the regulator, such as employment and inflation. Figure 6 shows how confident consumers who were aware of the FSA are that it effectively regulated the financial services industry. Figure 6 Overall, how confident are you that the FSA is effectively regulating the financial services industry? 60% 50% 51% 40% 30% 20% 20% 15% 10% 0% 6% Very confident Neither confident nor unconfident Very unconfident Fairly confident Fairly unconfident 7% Since a significant drop in confidence from a high of 67% in 2008, to just 38% in 2009, confidence has slowly been returning to the industry. Despite the recent growth, 2012 shows a slight drop figures showed that 60% of consumers were either very or fairly confident, but in 2012 the figure fell slightly to 57%. At the same time, those who are either very or fairly unconfident increased from 18%

26 in 2011 to 22% in It is highly likely that this is being driven by high-profile enforcement cases against financial firms and individuals. The FSA also measured the effectiveness and awareness of some quite specific individual regulatory tasks. The tasks were: authorisation (checking firms and individuals to make sure they meet certain standards to work in financial services, including whether individuals are qualified and companies have enough money to operate); prudential protection (making sure that banks, building societies, insurance companies and other financial institutions hold enough funds to pay out to their customers in normal circumstances); enforcement (fining and sanctioning firms for breaking the rules); and Conduct-of-Business (CoB) suitability rules (when people buy investment products, salespeople and financial advisers are required to ensure the product is suitable for the consumer). Before enquiring whether consumers believe that firms meet standards for the individual tasks shown above, the survey asked whether or not consumers are confident that firms follow rules. Understanding why consumers feel regulation may not have the impact they expect, or protect consumers to the degree that they feel they should be protected, can show the regulator where to prioritise effort. It can also influence how and whether the regulator advertises successes, such as compensation to consumers, prevention of malpractice or fining firms or individuals for malpractice, or to simply notify consumers of aspects of regulation which they may not currently know about.

27 Figure 7 Do consumers think that firms follow FSA rules? 60% 50% 51% 40% 30% 25% 20% 10% 0% 5% Very confident Neither confident nor unconfident Very unconfident 13% 4% Fairly confident Fairly unconfident There is a strong correlation between the results for this question and the overall effectiveness question. After a fall between 2008 (67% either very or fairly confident) and 2009 (40%) confidence has grown and in 2011 was at nearly at the same levels as 2008 and before 62% in However, 2012 saw a fall of 6% 56% are very or fairly confident that firms follow rules. In a slight difference to the effectiveness question, there is greater movement into the neither confident nor unconfident category (21% in 2011 compared with 25% in 2012), as opposed to consumers reporting they are fairly or very unconfident. Next, the survey asked consumers aware of the FSA about the very specific FSA activities mentioned previously.

28 Table 6: Knowledge of FSA activities all adults aware of the FSA Authorisation Enforcement Prudential CoB suitability I definitely knew the FSA did this I thought they must do this I thought some organisation must do this % % % % Don t know Base As with the results in Chapter 4 looking at what consumers expected of the FSA, consumers are more likely to be aware of the conduct responsibilities. 52% definitely knew the FSA carried out enforcement action and 49% were aware of the authorisations function. It is likely that the high awareness of enforcement is due to the press, which takes a greater interest in enforcement type cases, while prudential issues tend to only be featured in very specialised financial press. The survey also looked at whether consumers believe that firms reached the required standards for the FSA (enforcement is excluded as it does not apply to firms). The first table includes all adults while the second only includes those who were aware of the FSA.

29 Table 7: Level of consumer confidence that firms meet the required standards all adults (excluding those unaware of the activity/don t know) Authorisation Prudential CoB suitability All firms reach these standards Most firms reach these standards Some firms reach these standards Few/no firms reach these standards % % % Base Among all adults there was greatest confidence that firms follow the rules for authorisations. It is worrying that only 3% believed that all firms reached the set standards, and that for all categories around a quarter believed only some firms reach the required standards. Even more of a concern for is that a fifth believed that few or no firms reach the required standards for prudential and suitability. Table 8: Level of consumer confidence that firms meet the required standards among consumers who are aware of the FSA (excluding don t know) Authorisation Prudential CoB suitability All firms reach these standards Most firms reach these standards Some firms reach these standards Few/no firms reach these standards % % % Base When only looking at those that were aware of the FSA, there is marginally greater confidence that firms follow the rules. The level of consumers who believed that all firms reach the required

30 standards was still low, but there were a greater proportion who believed that most firms reached the required standards.

31 5 Attitude to risk An individual s attitude to risk to can indicate the degree to which consumers trust the financial services industry and can determine how consumers interact with the market. It can be an indicator of overall confidence in the economy, as well as individual product areas. Table 9 shows consumer attitude to risk and awareness of the FSA. Attitude to risk is a key ingredient to the assessment of suitability of products to consumers. Understanding of product risks and the ability to match products to risk profile leads to better decision making around product choices. Table 9: Which of the following statements best describes your attitude to risk? FSA unprompted FSA prompted Name or awareness of other financial regulators Assume there is a regulator No knowledge % % % % % % All Not willing to take any risk with investments Prepared to have some savings or investments in products that are higher risk than savings accounts Prepared to take risks to gain higher returns Base For all adults there was a continuing shift in attitude to risk to be slightly more risk averse. Those not willing to take any risk with investments grew by 3% from 2011 this was a 6% increase from The number of people prepared to take more risk to gain higher returns remained fairly steady (7% in 2012 compared with 8% in 2011). This is not surprising given the uncertainty surrounding financial markets. Those aware of the FSA continued to be the most risky (and were also those most likely to own risky products).

32 Table 10: Risk profile of consumers by the products they own Not willing to take any risks with savings or investment Prepared to have some savings or investments in products that are higher risk than savings accounts Prepared to take risks to gain higher returns Don t know Base Unit trusts, equity ISAs or PEPs Personal pension or FSAVC * Respondents can be in more than one of these categories. ** Treat with caution due to low base % % Direct share ownership % Bonds or gilts % ** Own a low-risk financial product (e.g. current or savings accounts) but none of the other categories Own no financial product % % Those with more complex/risky products were more likely to be aware of the FSA and have a greater appetite for risk. This is shown in the table above where those who own equity linked products such as an equity ISA or direct ownership of shares have the greatest risk appetite. Unsurprisingly a large proportion (71%) who own only a low risk product are not willing to take risks, which fits with their risk profile. Attitude to risk is a key factor to consider when purchasing a financial product. It is also important to understand how risky individual products are, to match up risk attitude to the appropriate product. This goes some way to ensuring that a product will perform as expected by the consumer. The survey asked respondents to categorise a few certain products into how risky they think they are.

33 Table 11: Consumer risk perceptions of different product groups all adults Saving accounts Direct investment in shares Residential property % % % No/Low risk Medium risk High risk Don't know Base Table 11 shows a couple of interesting changes from The number who believe savings accounts are no or low risk has dropped slightly from 76% to 72% perhaps reflecting the fall in trust and confidence in banks. Perception of risk to residential property has moved in the opposite direction with 42% now believing it to be no or low risk compared with 37% in This could reflect a stabilising of the economy with less people fearing house repossession with interest rates remaining low.

34 6 Treating customers fairly Treating customers fairly (TCF) continues to be an important measure. It is used to ensure that consumers are provided with the correct information before, during and post-sale and that complaints procedures are both followed by firms and understood by consumers. This section looks at whether consumers believed that they are treated fairly by firms. If consumers believed they had not been treated fairly by a firm, they were asked the type of problem they encountered. Where consumers are treated unfairly they could switch products or provider. The survey asked whether respondents had considered switching or had switched in the previous 12 months. This section also covers complaints and whether consumers believed that complaints were resolved in a fair manner and, finally, consumer behaviour when seeking financial advice who they seek advice from and how confident they are in this advice. Figure 8 shows whether consumers believed firms had been better or worse at treating them fairly over the previous 12 months. Figure 8 Treating customers fairly own experience And thinking about the past 12 months, in general, would you say that financial firms have become better or worse at treating you fairly? 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 77% 78% 72% 73% 70% 66% 20% 13% 9% 9% 8% 11% 7% 9% 7% 9% 8% 8% 8% 9% 7% 8% 7% 8% Worse No change Better Don't know As with the previous year, there was little perceived improvement in how firms treat customers. It is encouraging that only 7% believed firms had become worse. The vast majority of respondents reported no change. This could mean one of two things: perhaps firms were already performing at a

35 high level that could not be improved on, or at least are not expected to be improved on by consumers. Or it could mean the opposite that there is no change to a poor performance and resignation about how consumers will be treated, rather than a change in firm performance. The survey then asked whether an individual had been treated unfairly in the previous 12 months, and what the unfair treatment related to. Figure 9 Whether treated unfairly in past 12 months? 5% 95% Yes No 0% 20% 40% 60% 80% 100% 35% 30% 25% 30% 26% 20% 15% 15% 10% 8% 8% 8% 8% 5% 0% Customer service Complaint handling Delay Refused service Confidence PPI issues Pressed hard to buy Respondents could answer more than one category 5% reported that they had been treated unfairly in the previous 12 months. The leading causes of unfair treatment related to conduct issues: customer service, which includes long queues in a branch or not being able to get through to someone on the phone, and complaint handling. Regulatory issues included delays in transferring money, which can have knock-on harmful effects on consumers, PPI issues and being pressed hard to buy something that they did not want. 7.1 Product switching It is reasonable to expect that if consumers are treated unfairly, they will consider switching products. There are some products that are regularly renewable, so have a natural end date to their term, and switching is relatively straightforward. This is because consumers are given an opportunity to switch via the annual renewal process, and products are generally transferable. It is far more common for consumers to change products where they are taken out on short-term contracts and

36 systems are set up for the ease of switching. These types of products include housing and travel insurance. For other products the benefits of switching are quite clear, such as an interest rate on a cash ISA. For other products that are more long term, such as mortgages and investments, the benefits of switching may be in how they are treated. Changing financial products is an indicator of changing consumer need or consumer satisfaction and displays the degree that consumers shop around for the best deals a practice encouraged as it stimulates a competitive and innovative market. These in turn may act as an incentive to keep costs low and compete on non-financial grounds, such as treating customers well. The FSA measured the degree to which consumers were likely to change products and their reasons for doing so. Figure 10 Have you changed any product in last 12 months? Have you considered changing (but not changed) any product in past 12 months? Product Changed Considered Current account 3% 3% Savings account 3% 2% Cash ISA 8% 5% Mortgage 3% 4% Household 6% 3% Insurance Motor insurance 11% 9% Travel insurance 4% 3% The 2012 results, like 2011, show a low level of both considering and changing products. In some cases the product may not be at a stage where it can be changed, such as a mortgage with a fixed rate for a certain period, or it may not be appropriate to change for example a cash ISA may be better left in an existing account. But, this may be a reflection of people s contentment with their products or an indication of apathy. For current and savings accounts where day-to-day consumer finances may be linked to these products such as wages paid into an account and bills paid direct from an account, consumers perceive the changing process to be too complicated and the potential for errors, such as missed payments, to be too great to risk changing. Although banks advertise that it

37 is easy to switch accounts, and they offer rewards for people to swap, there appears to be unwillingness for consumers to change. Consumers are most likely to change or consider changing their motor insurance. The market for motor insurance is heavily internet based where it is easy to use comparison sites to check the best deal for stand-alone products and switch products. It is also renewable annually, and is a very pricesensitive product. However, it may be a concern that consumers use comparison sites to search for the lowest price product and. As a consequence this may lower their level of cover, which may cause problems in the event of a claim. Figure 11 Reason for changing savings products 90% 80% 77% 70% 60% 50% 40% 44% Current account Savings account Cash ISA 30% 20% 10% 27% 22% 20% 19% 12% 8% 7% 0% Financial reason Additonal benefits Standard of service Figure 11 shows that while consumers are most likely to complain about standards of service of a financial provider, their reason to change products is very much driven by price and benefits. Even for current accounts where it is expected that there will be greater interaction with a provider, finance plays a greater role than service. A contributing factor to this may be a rise in internet and mobile banking, which means there is less interaction with a bank but immediate access to accounts and that of other providers, which gives the consumer great knowledge of the products on the market so they can make informed choices and switch to the best deals. A fifth of those switching current accounts report additional benefits as a reason to switch and this may relate to the increased availability of packaged accounts, which charge a fee but may provide a range of benefits, such as a