Providers are not responsible for policing the actions of intermediaries, but have an obligation to monitor them "at a strategic level", says the Financial Services Authority.
In its discussion paper on the division of responsibilities between provider and intermediary in treating customers fairly (Tcf), the FSA states providers are not responsible for what the intermediary says when it gives advice or makes sales and, similarly, they are not required to police the intermediary’s actions.
Instead, the FSA says providers have an obligation to monitor their distribution channels “at a high strategic level”, for example by mapping their projections for sales volumes and distribution patterns onto actual volumes and patterns achieved.
Any unexpected peaks or dips should be taken as a cue for the firm to take a closer look at a particular distribution channel and to question whether the arrangement remains appropriate for the product being sold.
The regulator says providers are also required to assess the information needs of the distributor and, where their material is passed on, the information needs of consumers.
This could include details of the generic risks which the product presents and the target market.
Although the provider may not have direct interaction with the customer after the point of sale – for example if intermediation is undertaken by a wrap platform and the customer is held in an aggregate account – the FSA says, at a minimum, the provider should ensure the information it provides to the distributor is rendered with due skill, care and diligence.
Key responsibilities for intermediaries are:
- They must ensure they understand information about the product given to them by the provider and, if they are not clear, they must question it and request clarification before deciding to distribute the product;
- Where the sale is advised, intermediaries are responsible for fully considering the customer’s needs and circumstances so the product can be fully matched to the customer; and
- They must ensure the post-sale service is consistent with what they led the customer to expect. If they have an arrangement to provide ongoing advice or periodic reviews of a product’s performance, intermediaries should maintain adequate systems and controls to enable it to deliver on such reviews.
Speaking at the retail finance conference today, Sarah Wilson, director responsible for Tcf at the FSA, states: “At present, we encounter firms that over-interpret regulatory requirements – creating what they perceive to be regulatory costs where none exist. Of course, you might well wish to point out that much though we claim otherwise, we have not expressed ourselves clearly enough in some areas. But that is rather different from immediately jumping to the conclusion that, for example, we really intend to require producers to ‘police’ distributors.”
Fay Goddard, deputy director general at the Association of Independent Financial Advisers (Aifa), is positive about the paper because it is weighted on providers' responsibilities for product design and features, and giving intermediaries product material.
She states: "We are happy for advisers to take responsibility for advice, but sometimes in the past 100% of the blame has fallen on the adviser when there are doubts about whether they got full information about products."
Aifa is also pleased the FSA has said providers should not 'police' intermediaries, as Goddard points out advisers are already directly regulated by the FSA and she does not want providers to act as a "second tier regulator".
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Emily Perryman on 020 7968 4554 or email [email protected].IFAonline
To promote 'long-term investment'
Switching 'hard and expensive'
Smaller funds still packing a punch
To drive progress