Secondary

Introducing Ethics into your Practice

Managing your practice in terms of the FAIS Act and the General Code of Conduct may be time-consuming, but at least there is a set of rules to guide you.

The advent of outcomes-based legislation alters the playing field substantially.

You may soon find that you ticked all the right boxes, yet can be found wanting in terms of the desired outcome for the client.

One day, while playing golf at Voortrekkerhoogte, near Pretoria, we walked past an imposing building on our right. On enquiry, a cynical permanent force member in our fourball said: “That is one Military Hospital. We have a saying in the army: If a nine Mil does not get you, one Mil will.”

Possibly the biggest challenge for financial services providers, in this regard, is the implementation of Treating Customers Fairly (TCF), which brings an ethical element into the equation.

In essence, the fair treatment of clients will be measured against a similar system developed in the United Kingdom:

Firms are expected to demonstrate that they deliver the following 6 TCF Outcomes to their customers throughout the product life cycle, from product design and promotion, through advice and servicing, to complaints and claims handling – and throughout the product value chain:

  • Customers can be confident they are dealing with firms where TCF is central to the corporate culture
  • Products & services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly
  • Customers are provided with clear information and kept appropriately informed before, during and after point of sale
  • Where advice is given, it is suitable and takes account of customer circumstances
  • Products perform as firms have led customers to expect, and service is of an acceptable standard and as they have been led to expect
  • Customers do not face unreasonable post-sale barriers imposed by firms to change product, switch providers, submit a claim or make a complaint.

It appears that the biggest demand will be on product providers, while only outcome four specifically refers to the advice process. This is not necessarily so. Debunking the untruth in misleading point of sale material, for instance, is as much the responsibility of the product provider under outcome three as it is of the advisor.

A TCF Road Map was published in 2011, providing timelines for implementation of the six desired outcomes. The Financial Services Board (FSB) recently indicated that the intended launch date of January 2014 did not materialise due to sweeping changes envisaged under the new Twin Peaks model of regulation.

It hastened to add that there would, in fact, not be an official launch date as all the requirements for treating customers fairly are already contained in the current legislation. Section 2 of the FAIS General Code of Conduct obliges FSPs to “at all times, render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.”

Communication was conducted on a wide scale with representative bodies, and the focus has now switched to smaller players. The FAIS Department recently published two TCF guides aimed at assisting small FSPs and Asset Managers to understand their TCF obligations.

It also intends providing on-going guidance and support during supervisory interactions with financial services providers.

A key element in the implementation of a TCF framework will be the formulation of a TCF policy document for your practice. This should set out how you will ensure favourable outcomes for your clients, and will include regular training and awareness campaigns with your staff.

Ethical advisors should not have too much of a problem implementing a TCF framework and culture in their business. It will come down to formalising in writing what they have been doing all along.

Those who do not practice what they preach may just find themselves staring down the barrel of a nine Mil handgun.

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