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“Treating Customers Fairly” Law = Credible Information for Advisors and Consumers

By Almo Lubowski, CFP, South Africa

When considering the topic of good and credible financial information, especially for consumers, the regulatory concept of Treating Customers Fairly springs to mind. For those that are not aware Treating Customers Fairly (TCF) is an outcomes based regulatory concept or regulator tool initiated by the financial regulator in the United Kingdom and thereupon also adopted by the South African regulator in the recent past. This principles based regulation aims to ensure that consumers experience fair outcomes, because regardless of mostly tick box approach legislation consumers still experience unfair outcomes.

The question arises what is fair? Is never losing money fair or rather is it fair that the outcome, behaviour of a certain risk rated fund or insurance product is in line with expectations? It would certainly be the latter and in that case expectations can only be managed with good and credible information.

Honest Marketing Materials

Product providers specifically have had to rethink their marketing material and documents containing information about their products. TCF has 6 outcomes and outcome 3 states – “Customers are provided with clear information and kept appropriately informed before, during and after point of sale”. This includes the entire value chain, but naturally in my view starts with the product provider and their marketing material. Without such clear and understandable information it is virtually impossible to manage the expectations of consumers and therefore naturally they will experience unfair outcomes.

Lack of Adequate Information

Apart from basic marketing material available to consumers being simpler and more understandable in a TCF environment, it has certainly also created an equal playing field between the product providers and advisors. I have often heard of instances where product providers have refused or made it difficult for advisors to obtain information from them on behalf of their clients when the advisor does not market the product of that particular product provider. Even in instances where there is a contractual relationship between the advisor and product provider when it comes to obtaining information about complicated fee structures the product provider is not always forthcoming with adequate information to advisors.

This lack of adequate information in an easy to understand and clear fashion can without a doubt hinder the consumers ability to make an informed decision if he/she is trying to make this decision on his/her own or with the assistance of an advisor. So TCF has and can only improve this situation in the relevant jurisdictions that have adopted the concept. It is certainly one of those regulatory initiatives that can without a doubt be turned into a tool for advisors rather than a compliance burden. Advisors now have a tool to enable them to hold product providers to account on behalf of their clients.

As for other jurisdictions it is difficult to comment on how consumers and advisors can ensure that financial information, especially about the myriad of products out there, can be obtained, but it is clear that regulators are learning from each other in forums such as IOSCO (International Organization of Securities Commissions) and the concept of disclosure is high on the agenda. I would urge advisors around the world to embrace such concepts as long as they ensure that consumers and advisors alike will be able to hold product suppliers to account to give adequate, clear and understandable information about their products. Especially if you believe your value as an advisor or planner is far beyond trying to explain complicated products to your clients.

2 comments to “Treating Customers Fairly” Law = Credible Information for Advisors and Consumers

  • TCF is a brilliant framework to support CFP’s to do what they really want to do for their clients – look out for their best interests. It is not easy to implement, however, and it challenges us to ask ourselves some difficult questions concerning how much we truly are looking out for customers’ best interests. Nice that we have the warm, fuzzy good intentions to do so, but TCF pushes us to be able to demonstrate and measure those intentions, and in so doing, sometimes we realise that we aren’t as fair as we thought we were.

    TCF is also ingenious in the way it forces greater collaboration between the parties in the value chain. This too isn’t easy. But the best financial services firms and CFP’s will maximise this opportunity to build stronger partnerships than before. TCF will require that we expect product providers to do their part in delivering fair outcomes for customers, and likewise, they will expect that we do our part. Those expectations will need to be backed up with evidence. This leads to greater information sharing between the parties which if used effectively, can only be good for the customer.

  • Almo Lubowski

    Very valid points Samantha and it sounds like you have embraced TCF in its truest sense and turned it into an opportunity rather than a compliance burden.

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