Hypocrisy of providers who nudge but still 'sludge'

Last year, it was all about focusing on price walking practices - specifically the way in which insurance companies have hiked premiums ridiculously high each year on renewal.

For those like me who enjoy a bit of dialogue over the phone, it is satisfying to talk the pet insurance provider down to a more reasonable annual premium increase. 

For those who do not like to engage, or do not feel confident in doing so, they'll suck up excessive price increase after increase, until they cancel their premiums altogether. 

Consumer duty, of course, aims to end that practice of price-walking and promote better transparency and fairness on premium pricing for consumers.

It is all too clear that providers are still not doing the right thing when it comes to sludging. 

But the jargon I want to focus on here is 'sludging'. This is the practice by which companies make it hard for ordinary people (and even advisers) to switch to a new provider or product.

I don't know how long this phrase has been in practice - we're familiar with the more professional-sounding 'negative friction' - but the FCA has certainly been keeping an eye on this for many years and it is an area of focus for the regulator when it comes to the incoming consumer duty regulations.

The regulator has already said it is publishing research on sludge practices and is considering "potential approaches that we may use in our supervisory work to investigate them".

Poor practices

This cannot come too soon for hundreds of advisers, who have contacted FTAdviser over many weeks and months about poor practices by financial services providers. 

There are incidents where clients are unable to access their money because Provider A has not passed all the documentation over to Provider B when it comes to transfers.

Some companies, as evidenced recently by an adviser seeking to get his clients' Sipp money extricated from the cold, bony hands of the failed Sipp provider's administrators, are refusing to accept documentation by email - it has to be via post. 

Others have put up financial barriers in the form of unreasonably high early repayment charges, or expecting customers to provide hard copies only of documents which could go back 10 years or more. 

Financial services providers are all talking the talk about positive interventions in a client's life - such as talking to them when they get married or have a sprog or divorce - to promote new products or plans to them.

I've sat on numerous consumer duty panels where providers are hailing the incoming duties as an opportunity to "nudge" people to make better decisions.

They can certainly say the right things about nudging individuals to be financially empowered and better educated about their money.

But it is all too clear that providers are still not doing the right thing when it comes to sludging. 

If advisers face brick walls, 40-minute-calls while listening to Barry Manilow instrumentals, ridiculous administration requests and failures to execute client wishes in a timely and appropriate manner, what chance do ordinary consumers have?

Hopefully the consumer duty will make sure that while providers are all excited about the 'nudge', they also get to grips with their 'sludge'. 

Because if they don't, it won't just be the FCA that is going to investigate sludge practices: every single financial journalist on every title, national and trade, will be watching out for it, too.

Simoney Kyriakou is editor of FTAdviser

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