Mexico's Afores to face new customer service rules

Mexican pension regulator (Consar) said it would be issuing new regulations for the country's pension fund managers (Afores) in the third quarter this year to improve customer service.

The agency announced the upcoming revision on its website, where it described how the current framework failed to incentivize customer service and outlined efforts to determine specific problem areas that need to be addressed.

"The incentives that Afores have to improve the quality of service they offer their clients are not sufficiently robust," read the Consar note, adding that for this reason, new regulations are necessary to ensure that the private firms handling these obligatory accounts extend to their clients basic guarantees of customer service.

"It is necessary that the regulations include precise definitions and guarantee mandatory basic levels of service that all Afores must offer, which must be subject to supervision and measurable through a service indicator monitor," added the agency.

Consar said the upcoming guidelines would work to encourage Afores to redirect their strategies and business models from the purely commercial sphere to improvement in the service they provide to clients.

"The choice of Afore that manages savings for retirement is one of the most important and basic rights that contributors have," said Consar. "This choice should be made, ideally, based on three criteria: the performance they provide, the fees they charge and the services they offer."

"In most markets, customer service is a determining factor for choosing or staying with a particular brand or company, that is, people 'reward' or 'punish' their provider depending on the service offered. This does not happen in the same way in the pension system due to several reasons."

While workers are legally allowed to move their private retirement account to the Afore of their choosing, many stay with the Afore they were initially assigned to upon their first formal employment position, in large part due to the perceived complexity involved in the process and poor understanding of the Afore system.

Consar stressed this has created a "captive market," adding the system fosters low elasticity of demand from the client end.

"The Afore 'clients' are usually not fully involved and informed of the differences that exist between the 10 Afores," said Consar. "This leads to the Afore dedicating a considerable part of the resources that come from commissions to the commercial aspects (transfers) and not necessarily to improve the quality of the service."

The Afore system, now two decades old, is still in an intermediate stage of development - a so-called accumulation phase that gives priority to demand over customer service, according to the agency.

"The question is whether the Afores have improved the services they offer in line with the growth of demand and, above all, if they are preparing to face the exponential growth of services that the system will experience in the next decade," said Consar.

"All of the above means that contributors often do not exercise their 'veto power' in order to demand higher levels of service from Afores, and therefore, the incentives that Afores have for self-regulation in this regard are not fully aligned with those of the worker."

Evidence gathered

The drive to bolster customer service guidelines at Afores is the result of inspections carried out at Afore offices and branch locations and an accompanying study carried out in collaboration with Ernst & Young.

The inspections helped identify several key problem areas. Among these, Consar said contributors sometimes receive incomplete information or information that is inconsistent with current regulations.

It determined that clients often face inordinately long wait times at branches due to a shortage of infrastructure and/or a lack of personnel to attend the public, frequently forcing them to make repeated visits or calls to their Afore, even to receive a basic updates on their accounts or transfer requests.

Consar said the study conducted with EY sought to determine best existing practices in the field, make a diagnosis of the Afore service level and define recommendations, providing the agency with key areas to address with the new regulations.