With the onset of Treating Customers Fairly - or TCF - fast approaching, the regulator has published a paper highlighting its progress, says Chris Salih. And it's not a pretty sight
With Treating Customers Fairly - or 'TCF' - set to be unleashed on the market in spring 2007, the FSA has published its most recent paper on the subject, highlighting the progress - or lack thereof - among firms who need to implement the initiative.
Keen to point out that TCF is an ongoing process - rather than something firms could merely implement and subsequently forget about - the regulator saw the progress of firms as mixed, with some making a serious effort to employ its spirit, while others procrastinate as we move closer to, for want of a better expression, T-Day.
The FSA's report highlighted that although some groups have claimed to have adopted TCF, any activities to that end have been nothing more than on the periphery of their respective business. This is particularly true on the subject of Quality of Advice, where the regulator said standards need to be raised "significantly" in order to reduce the possibility of misselling.
As a result of some groups' failings, the FSA said it felt compelled to reiterate its target that by the end of March 2007, firms must be at the 'implementation' stage of TCF and that it expected to see measurable changes in outcomes for consumers by the end of the year. The FSA also highlighted the several outcomes it expected for consumers, ranging from ensuring the public is able to deal with firms where the fair treatment of customers is a key part of the corporate culture to making sure they don't have to deal with unreasonable post-sale barriers imposed by firms when they want to change a product, switch a provider, submit a claim or make a complaint.
The document would appear to show the FSA is willing to hold the industry's hand through the initiative, particularly as it is offering its own training system, but many advisers are all too aware of how hard the regulator can be. With guidelines blurred between what it would like to be done and what needs to be done, plenty of advisers will be peering anxiously around the corner to ascertain what may happen next.
One problem is that much of the spirit of TCF is open to interpretation and therefore almost totally principle-based. However, in order for these principles to evolve, and at some point become set in stone, there need to be some rules to enable the FSA to evaluate groups on an equal basis.
"There is a grey area as to what TCF actually entails," said John Enos, managing director, marketing at The Hartford. "Much of it is down to common sense and revolves around the issue of service - an area both providers and distributors still have major problems dealing with. The FSA has also offered encouragement to those willing to embed the approach within their business, by claiming it will take a lighter touch with them."
While that may be a comfort to some businesses, the FSA has also issued a warning to groups choosing to ignore the principles. "Some firms may continue to deny TCF has any relevance for them, or fail to take appropriate steps to work out what changes may be required and start implementing them," stated the watchdog's report. "Where this happens, we will be more inclined to instigate enforcement action if a firm's systems or actions leave open the potential for consumer detriment or where actual detriment has occurred."
This is where words like 'interpretation' and 'commonsense' come to the fore - and may consequently send chills down an adviser's spine at the possibility of overlooking a particular business avenue where this could occur. Ian Green, a director at Caversham Buchanan, said: "While we are happy with TCF, the real challenge will surround the FSA's future interpretation of the process, particularly if they start moving the goalposts for firms."
As Nick Cann, chief executive of the Institute of Financial Planning, points out in our Adviser Clinic on page 18, with advisers moving more and more towards a fee-based product, TCF can work with investments and financial planning so long as attention is paid to clarity and transparency, with advisers getting paid properly and fairly for the service they offer. However, with the whole issue of TCF revolving principally around service, the possibility of future confrontations between advisers and providers cannot be ruled out.
"Although TCF is arguably supposed to bring providers and distributors together, there is a chance it could do the opposite," said Enos. "For example, if an adviser agrees to provide a service to a client within a specific timescale, but the provider who is needed to complete the service fails to do that, then it's the adviser who is likely to bear the brunt as it is they who manage the relationship with the disgruntled client."
Not if Caversham Buchanan can help it, however - said Green: "Whilst there is the potential for this to happen, we ensure that our relationship is clear and transparent and that if a provider lets the process down, then the group will have written documentation to show what service was due to be offered and when."
A particular gripe of Green's with the FSA is its failure to employ TCF across the board. "So long as the incorporation of TCF is clear for all firms, those found guilty of failing to live up to the terms should really have no defence," he said. "It is somewhat ironic though that the FSA doesn't include itself within its own TCF remit - after all, there is hardly anywhere to go and complain about them."
When the FSA decided to tackle the issue of service within the financial services industry, it committed a lot of people to a lot of due diligence in order to bring their respective businesses into line. Tackling management responsibilities, reporting, sales and marketing and after-sales care is a grey enough area to begin with and, while the imposing of principles rather than rules may show the FSA to be open to interpretations of the TCF initiative, advisers might actually prefer a definitive steer rather than having to claim ignorance if the hot breath of the regulator hits their necks next spring.
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