All financial services firms must do more to ensure customers are treated fairly, says the FSA, as its own scathing research suggests some advisers still recommend products according to remuneration prospects rather than the needs of the client.
In particular, the report which studied six of the largest "retail groups" says companies do not have sufficient controls in place to ensure consumers are recommended products which meet their needs, as the FSA suggests the way in which “sales forces and advisers are remunerated could have an influence over the sale of the product to the consumer”.
A pilot study of TCF conducted by the FSA suggests companies may be aware of a small concern as to whether or not remuneration structures encourage or discourage compliant behaviour among advisers, so some companies are now looking at the compliance record of each person when setting the basic remuneration of an individual adviser.
That said, the FSA was unable to establish whether the use of differing commission rates for similar products led to "unsuitable sales" or an increase in mis-selling.
The FSA also suggest complaints handling can also differ between one firm and another as “while some improvements have been made in complaints handling, quality varied between products and firms. Firms also failed to use complaints data effectively as management information or to identify trends from complaints,” says the report.
There may also be holes in some company systems, suggests the FSA, where companies design products but do not check they have included all the data suggesting products are suitable for their target market.
“Firms did not always include assessment of risk to the customer or of customers' needs in the product development process or in assessment of the target market,” says the report.
Much of the emphasis of the report is placed on senior managements’ ability to keep a tight reign on the running of the company and in ensuring procedures are regularly checked for any flaws in TCF processes.
“The responsibility for delivering TCF lies with firms’ senior management, who need to be intelligent, thoughtful and effective in their implementation of the TCF requirement. While in large firms senior management will need to delegate implementation of much of the process, they cannot simply pass on responsibility to the compliance or risk department,” according to the FSA report.
In order to counter the problem, firms may need to add and show additional safeguards, controls and management reporting, suggests the FSA, at each stage of a product's life-cycle to protect TCF processes, who look at:
In a somewhat 'tongue-in-cheek' manner, the FSA report says "TCF does not mean the same as being 'nice' to customers or creating satisfied customers, nor is it designed to inhibit innovation in new products.
The FSA points out it is not interested in being the "arbiter of what products consumers should want or be sold" as it still expects consumers to make their own decisions and take responsibility for them.
The FSA's own strategy for tackling what it sees as shortcomings will include an extension of the existing TCF pilot study between September 2004 and March 2005 and include assessment of medium sized and smaller firms.
A consultative group of representatives from the industry, consumer bodies and the Financial Ombudsman Service will also be set to try and establish what treating customers fairly means.
Further analysis of the TCF pilot is likely to include further desk-based analysis as well as external firm visits, analysis of a senior manager's understanding of TCF requirements, closer scrutiny of specific stages and control's of a product's life-cycle, identification of good and bad practices so the FSA can then take regulatory action where necessary.
First mentioned in Cridland Report
Second acquisition of 2019
Guy Opperman has rejected calls to speed up changes to auto-enrolment (AE) despite increasing pressure to boost contribution rates and overall savings pots.
Four key areas to focus on
And 94% for critical illness