Financial institutions told to improve complaint processes as consumer regret grows

South Africa’s financial service providers must improve their handling of customer complaints and make processes more accessible to consumers who have expressed high levels of buyer’s remorse because of the way they have been treated.

A report released by the Financial Sector Conduct Authority (FSCA) on Monday showed that a low number of complaints were received by the financial institutions surveyed, assessed from 2021 to 2023, including insurers, retirement funds and retirement administrators.

The two-phase study included an online consumer-engagement survey of 11 000 people to gauge their awareness of complaint-handling processes and their experiences, said the FSCA’s senior manager for disclosure, advertising and market analysis Koko Kubelo.

The study focused on financial institutions’ effectiveness in dealing with complaints, the accessibility of complaints-handling processes to consumers and institutions’ timeliness in resolving complaints, Kubelo said.

“What we have seen is that there’s a low number of complaints received by the financial institutions and particularly these three industries that we have assessed,” she said.

Financial institutions reported that they broadly categorised complaints into products or services; information provided to clients; advice related; performance of financial product; lapsing of financial product; complaints handling; insurance risk claims and other complaints.

The study found a lack of uniformity in recording and reporting complaints and that not all entities had documented processes and procedures for handling them.

“Often what we have seen is that there are a limited number of senior complaints-handling staff members and we see that there’s a lack of proactive solicitation of feedback from consumers by the financial institutions,” Kubelo said.

“Not all institutions have made consumers aware of their internal escalation processes, and this seems to be a concern across the board, and we also have seen inconsistencies that need to be addressed, so that there can be improvement in terms of treating customers fairly and improving their customer outcomes.”

Financial institutions reported resolving complaints within a week to a month.

A benchmark exercise was also conducted with the authority’s international counterparts — the Australian Securities and Investments Commissions and the UK’s Financial Conduct Authority —  as well as interviews with statutory ombuds.

“Although the focus of our review was not to evaluate the ombuds’ complaints-handling arrangements, but for completeness’s sake, we needed to engage with them and hear their views around complaints management by the financial institutions,” Kubelo said.

“The ombuds indicated that there’s limited commitment by financial institutions in terms of resolving complaints and they’ve also indicated that they have seen that large institutions show more commitment to improving customer outcomes and resolving complaints in comparison to the small financial institutions.

“The ombuds also highlighted the need for financial institutions to prioritise complaints and the prioritisation would entail that the staff dealing with complaints should not only be staff at a low level but also senior personnel.”

The ombuds indicated that financial institutions were not raising sufficient awareness of their internal complaints-handling escalation processes and said more should be done to enhance accessibility and clarify the processes and procedures for lodging complaints.

“They’ve also seen a lot of mismanagement of queries, which tend in turn to become complaints. And these complaints tend to be directed towards the offices of the ombuds,” she said.

Kubelo said the consumer survey confirmed institutions’ experience that there was a low number of customers filing complaints, with only 8% of the respondents saying they had launched a complaint.

“Out of the 8%, 31% lodged complaints with the category one FSPs, 31% with a retirement fund and only 9% with a fund administrator,” she said.

The low rate of complaints was in line with research conducted by the Human Sciences Research Council in 2021 which showed that consumers generally do not lodge complaints, even in instances where there is a need to, such as when they have been sold an unsuitable financial product or service.

Also, the findings of the FSCA’s customer behaviour and sentiment study in 2023 showed that customers across a broad range of demographics report experiencing challenges in lodging complaints with financial institutions.

“We also looked at the overall satisfaction with the complaints-handling processes by the consumers, and on effectiveness, 67% of consumers were dissatisfied with the complaints-handling processes by the financial institution and 63% were dissatisfied with complaints resolutions,” Kubelo said.

“The highest number of complaints that financial consumers have been lodging was in relation to retirement funds products at 57% and there is little knowledge of escalation processes within the financial institutions … Of consumers that had their complaints escalated beyond the first level, 40% of those have a complaint escalated but not resolved.”

Overall, 67% of consumers had indicated regret at having taken up a financial product or service, because of their experience.

Based on the findings of the study, the FSCA recommended that financial institutions implement standard operating procedures for complaints handling and actively solicit feedback from clients or fund members, Kubelo said.  

“There’s a need for systematic approaches in dealing with complaints and for financial institutions to establish and document systematic approaches for determining the frequency and the type of training [of staff] as well as the adequacy of complaint-handling staff within their complaints-handling department,” she said.

“There is a need also for uniformity, for financial institutions to develop methods for categorising complaints, to ensure consistency in how complaints data is captured, recorded and also reported.”

Financial institutions should clearly document their internal complaint escalation processes so that customers would know when and how to complain and who to complain to, she added.