The Treating Customers Fairly (TCF) framework consists of six outcomes which sets out the conduct which FSPs must display during the financial planning process and in every facet of the business.
Outcome 1 – ‘Customers are confident that they are dealing with firms where the fair treatment of customers is central to the firm culture’
This outcome is the most difficult to ‘prove’ as it is a culture already inculcated in most practices. It is something that we always hear ‘on the ground’. The principles of Outcome 1 is found in the provisions of the FAIS Act. Section 16 of the FAIS Act provides that financial services providers and their representatives must act honestly and fairly, with due skill, care and diligence, in the interests of clients and the integrity of the financial services industry. They must act meticulously and treat clients fairly, especially in a situation of conflicting interests. In addition, section 2 of the FAIS General Code of Conduct states that a financial services provider must 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.
Outcome 2 – ‘Products and services marketed and sold in the retail market are designed to meet the needs of identified customer groups and are targeted accordingly’
On the face of it, this outcome seems to be aimed at product providers. As an advisor, however, you cannot avoid this outcome as you market and provide the advice on the product directly to the client. Section 8 of the General Code of Conduct obliges advisors to gather as much information from the client as possible and thereafter conduct a financial needs analysis before making any recommendations. In addition, section 9 of the General Code of Conduct safeguards both the advisor and client by stating that a detailed record of advice must be kept about the recommendations that were made based on the analysis conducted. This must include all products considered and details about what was eventually implemented. For example, if a client requested a certain product, it is in the record of advice that you would need to explain why this product is perhaps inappropriate to the client’s needs and objectives.
Outcome 3 – ‘Customers are provided with clear information and kept appropriately informed before, during and after point of sale’
This outcome is often referred to as the disclosure outcome. Full and proper disclosure has become a huge element in consumer fairness as seen by the Consumer Protection Act. The General Code of Conduct provides that information provided to a client must be factually correct, in plain language, and must be adequate and appropriate in relation to the level of knowledge of the particular client. In addition, disclosures made to a client should be reduced to writing. The client must also be informed of all relevant monetary obligations, which includes fees and charges to the product supplier and commissions and/or fees that will be paid to the financial advisor or intermediary.
Outcome 4 – ‘Where customers receive advice, the advice is suitable and takes into account their circumstances.’
Section 8 of the General Code of Conduct also requires that advice must be suitable. In terms of section 8 of the General Code of Conduct an advisor must take reasonable steps to seek appropriate and available information from the client regarding the client’s financial situation, financial product experience and needs and objectives in order to provide the client with appropriate advice.
This information must be analysed in order to identify a product that will be appropriate for the client, taking the client’s risk profile (if applicable) and financial needs and objectives into account. Any shortfall in a client’s financial circumstances should be highlighted to the client.
Outcome 5 – ‘Customers are provided with products that perform as firms have led them to expect, and the associated service is both of an acceptable standard and what they have been led to expect.’
This outcome places a responsibility on product providers who are creating the products. However, it is a responsibility shared with the advisor as it is based on what information is given to the client and what was disclosed in this regard. Providing clear information to a client in a manner in which the client understands will ensure that the client’s expectation is aligned to how the product should perform. The requirement that advice and products must be suitable also plays a significant role in meeting this outcome due to the fact that unsuitable products will certainly not perform in line with the specific needs that the client may have.
Outcome 6 – ‘Customers do not face unreasonable post-sale barriers to change product, switch provider, submit a claim or make a complaint.’
This outcome is a dual responsibility shared by the product providers and advisors. More often than not the client’s link to the product supplier is the financial advisor and there is an obligation to assist the client when they need to deal with the product supplier. This can be deduced from the fact that an advisor is obliged to give annual information (at a minimum) to the client on their product portfolio in terms of section 7 of the General Code of Conduct. At that point there may well be a desire to cancel, switch or change aspects of the current portfolio and naturally the advisor or intermediary would need to assist with this.
It is important that FSPs do not view these six outcomes as independent outcomes, but rather as six outcomes that are part of a uniform process to achieve a uniform outcome.
Masthead hosts a Treating Customers Fairly seminar. For more information about this seminar or if you are interested in attending, contact your nearest Masthead regional office. Click here for contact details.