Secondary

Think TCF Part 2

Outcome 2: Financial services & products rendered to clients are designed to meet the needs of clients.

Your first thought is possibly: this does not apply to me.

Think again. This outcome of Treating Customers Fairly is not only about product design – it also requires you to match your client’s needs with the right products.

The initial wording of this outcome read:

Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly.

The focus of the last two words involves financial advisors very specifically.

In the TCF guide for small FSPs, the following aspects are highlighted for you to consider:

  • Do you understand your clients, their financial situation and their financial needs?
  • Do you understand what the products really do, and how it matches the needs of your clients?
  • Do you do due diligence on all the products/providers you offer?
  • Do you do a suitability analysis in terms of section 8 of the General Code of Conduct?

Recently, the FAIS Ombud made ten determinations against one financial advisor. The recurring theme in all these cases alluded to the fact that he, according to the Ombud, did not conduct a proper due diligence on the product he sold. Had he done so, he would probably have uncovered some questionable practices which should have set off alarm bells.

The mere fact that a product offered good returns over a period of time is no guarantee that all is above board. A typical example is an investment in some of the property syndications on offer a few years ago.

Investors were led to believe that they invested in property. What they in fact bought was unlisted shares which were relatively easy to convert into cash in a flourishing market, but once the bubble burst, it was impossible to sell.

Comments from the Ombud again indicated that, in some of the complaints she investigated, the advisors involved had no idea how property syndications really worked, and could therefore not properly advise their clients.

This not only applies to investment products.

Short-term products are no longer a one-size-fits-all facility. Without a thorough analysis of the client’s circumstances and needs, you may well be adding or omitting very important elements which may result in unfair outcomes for your clients.

The postponed level 2 regulatory exams were intended to address this issue by focusing on the key issues underlying all products. While product providers add bells and whistles to distinguish their products from others, there are certain legal requirements to which all products have to conform.

The Regulator plans to introduce standardised documentation to ensure that clients are able to compare apples with apples. This is something we have been advocating for years, but encountered resistance as some providers felt that it would detract from their “unique selling points”.

What happened in the past is that many advisors simply sold what they were told. Marketing material was designed to lead to a sale, rather than assisting the client in making an informed decision.

When complaints arose in the past, the advisor usually got the blame.

With the focus now shifting to product design and improved disclosure, there should be a fairer outcome for financial advisors, too.

Please click here to download the guidelines provided by the FSB:

TCF – Guidance for small FSPs/ Independent Financial Advisors (IFAs) and

TCF – Guidance for Asset Managers

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