'Treating Customers Fairly': Another Catch-22 Idea from the Regulators

Heaven knows the world of advertising and marketing has become increasingly heavily regulated in recent years, but no other sector has seen an initiative quite like the 'Treating Customers Fairly' (TCF) initiative launched in financial services last year by the Financial Services Authority.

TCF is an example of the FSA's big new idea: so-called 'principles-based' regulation. It means introducing regulation based around abstract and high-level concepts, refusing as a matter of policy to offer any clear guidance or explanation, and then punishing the industry if it doesn't agree with its interpretation of them.

It's also an example of the FSA's greatest weakness, which is the way that its ability to define undeniably admirable goals is counterbalanced by a complete inability to define appropriate ways of achieving them.

TCF is a principle that is supposed to extend across the whole lifespan of financial companies' relations with their customers, from product development right through marketing, sales and postsale communication.

To someone like me, interested mainly in the earlier stages of this journey, it raises some very serious and difficult conceptual and even ethical issues. As the financial services industry has all too plainly demonstrated on all too many occasions, activities like product development, marketing and selling can certainly be very, very unfair. But you don't need Vance Packard-like paranoia to find yourself wondering whether, in the context of commercial relationships, they can ever truly be absolutely 'fair'.

Sadly, questions like this were never seriously debated during the consultation period before the introduction of TCF, or indeed since. In its own pronouncements on the subject, the FSA itself wastes no time on difficult questions of definition and meaning. And the industry – which could and should have interrogated those pronouncements much more rigorously – instead just rolled over without even a flicker of resistance and accepted this enigmatic new regime without question.

Some people say this was because, in the light of its less-than-perfect track record over the last few years, the industry simply didn't dare to be seen quibbling with an initiative with a title as obviously right-minded as 'Treating Customers Fairly'. But most people believe that the lack of resistance resulted from a more pragmatic motive: a widespread view among the industry's senior figures that it would be best to offer no resistance to the FSA's assaults on marketing and communication, in order to keep their powder dry for more important battles. Which, in itself, says some depressing and sobering things about the perceived importance of marketing and communication in financial services today.

In the absence of any real debate on the deeper implications of TCF, it's becoming clear that, at least for the time being, both the FSA and the industry have tacitly agreed on an approach to implementation that depends largely on box-ticking. Companies need to be able to demonstrate, for example, that their new product development teams took TCF issues into account in their process. Or that their marketing communications people tested the customer literature among consumers to make sure they could understand it.

If the whole initiative simply degenerates into a lot of bureaucratic form-filling, I suppose we should be grateful. But the underlying issues – about the extent to which marketing and communications can ever be really fair – don't go away.

And, of course, they don't only apply to financial services. Not least because there are plenty of other regulators who may, at this very moment, be considering the case for migrating TCF into their own spheres of influence, I can't help thinking they're issues that all marketers should be pondering just now.

You can easily find things the FSA wouldn't like in other market sectors. It's become apparent, for example, that Treating Customers Fairly involves providing them with comprehensive risk warnings in communications of all kinds – not just at the point of sale, but in all marketing communications.

As a result, the FSA believes in a concept it calls 'balanced advertising', an idea which a lot of us think of as an oxymoron on a par with 'cold heat' or 'German comedian'. The FSA's idea, broadly speaking, is that for every positive thing you say about a product in an advertisement, you should give equal prominence to something negative. This means that a headline for an investment, which might once have read 'An investment with outstanding growth potential', now has to read 'An investment with outstanding growth potential and the risk of losing most of your money.'

Many investment providers aren't brilliant advertising strategists, but even so most can see that running ads like this isn't a great way to use their budgets. The result is that investment ads making any kind of performance claims have pretty much disappeared.

In other sectors, they remain commonplace. Just think about all those automotive ads that say nothing about the risk of accident and injury, let alone the threat of depreciation and high maintenance costs. I've never seen an ad for a food or drink product that highlights the risks to health, or an ad for an OTC pharmaceutical that gives equal prominence to the side-effects. ('Nothing acts faster than Anadin, but watch out for the gastric bleeding.')

The TCF requirement for 'balanced advertising' doesn't just deal with risk warnings. The FSA has also made it clear that it's very uncomfortable with selective claims, particularly around investment performance.

In truth, the FSA's stance on this issue is a bit nonsensical. Originally, it argued that there is no statistical evidence that the past performance of an investment says anything at all about its future performance, and therefore that no past performance claims at all should be permitted. This position stirred up an atypical hornet's nest of protest from the industry, and also, no less surprisingly, from consumers. The FSA made a partial retreat, finishing up in a strange and intellectually untenable position, allowing the use of past performance claims provided that large quantities of data are provided, not just a bit.

It's a strange idea, and, again, a pretty scary one when applied to other segments. Car ads would have to show figures for all other speed increments alongside their 0–60 times. Washing machine manufacturers couldn't just make claims about their spin speeds. And shouldn't holiday advertisers show average monthly hours of sunshine statistics beside their blue-skied photos of their destinations?

Of course this is all ridiculous, but then so is the very notion of 'balanced advertising'. There is no such thing, and I confidently predict there never will be. It makes no sense for commercial organisations to buy advertising spaces twice as big as they need in order to fill half of them with messages that discourage consumers from wanting their products. In real life, 'balanced advertising' is synonymous with 'no advertising'.

But the issues raised by TCF are much more fundamental than these. Ultimately, it's an approach that gives the regulator the power to punish any behaviour that it believes treats customers unfairly.

Our job is to encourage people to want our products and services. In an increasingly marketing and communications-literate world, the methods we use to do so are becoming gradually more and more sophisticated. The patter of the 19th-century Wild West snake-oil salesman, peddling a magical substance that can do anything from curing baldness to removing warts, would seem laughable today. But the principles aren't so different. It would be very interesting to see what effect a rigorous TCF regime would have on the product development, marketing and sales practices of the cosmetics industry.

It may never happen. But remarks about the thin ends of wedges may well apply. For the first time, a major regulator is now demanding 'fairness' in the communications, marketing and sales practices of a very large sector of the UK consumer economy. So far, admittedly, that demand has been made without any serious interrogation of what 'fairness' actually means. Even so, despite the fact that so far we're seeing much more box-ticking than ethical debate, you can't help thinking that a Rubicon has been crossed.

This article featured in Market Leader, Winter 2005.