How Financial Services Maintain Customer Loyalty Through Compliance
All companies – from retailers to hedge funds – know that customers are their number one priority. Client obligations are always the first concern as customer satisfaction is the only reliable road to growth. The 2013 Lloyd’s Risk Index cited “loss of customer” or “abandoned transaction” as the second-most-critical business risk (ahead of cyber risk and behind taxation). First of all, we all know that it is far more expensive (according to some studies up to 10 times more) to acquire new customers than it is to retain existing ones. So businesses spend enormous amounts of time and resources developing initiatives to keep customers coming back.
While companies prioritize customers by striving to drive loyalty, Forrester believes they fail to take into account those associated risks that end up driving customers away. As cited on CFO.com, a Forrester report says that the “discrepancy” between concern for loss of customer and the priority given to the mitigation of related risks “illustrates the growing gap between strategic business priorities and antiquated risk assessments. Companies with high-value brands may explain in detail their customer satisfaction and brand-loyalty strategies in annual reports, but rarely do they consider the risks that might crush these priorities.”
Where should you start in the battle to reduce the risks associated with customer attrition? The first place is to look at why customers leave. Clients will pull their money out of banks and funds when they do not have complete trust in the institution, and trust depends on maintaining promises and a good reputation.
It should come as no surprise, then, that your contractual obligations to clients are of the utmost importance in earning and preserving trust. A disappointed client is a disloyal client. But more than client attrition, failure to adhere to client obligations can trigger severe penalties such as expensive and distracting legal action, regulatory fines, and crippling brand damage.
Reputation remains a critical element of maintaining client loyalty. Indeed, insurers now offer policies that indemnify against profits lost due to brand damage. Financial services firms and banks risk reputational damage through poor performance, fraud, and, most importantly, compliance failures. In this post-GFC era, as government and industry regulatory bodies impose more and ever-changing regulatory and reporting burdens on firms, the media and regulatory bodies scrutinize compliance more than ever. Failure to comply with regulation send unequivocal messages to clients that the firm may be unreliable or, worse, unable to handle responsibilities.
How can you be in complete control of your regulatory and client obligations? Easy – it’s all in your contracts. Having complete control over and visibility into your contract portfolio means you’ll never miss a commitment. The only way to have a truly uninterrupted view of all of your contractual obligations (and rights) is to utilize a Contract Lifecycle Management (CLM) tool that analyzes contract data, tracks milestones, and sets up triggers so you never miss a commitment.
For more on how CLM helps asset managers and investment managers reduce risk, click here.
To download an illustrative case study on how one asset manager uses Exari CLM for obligation and regulation management, click here.