Each month, we ask our industry to answer one big question!
Nick Bladen is head of pensions marketing at Skandia
At the heart of treating customers fairly (TCF) in relation to pensions is the need to regularly assess and review clients' plans. This is to ensure that the strategy surrounding products and investments satisfies client objectives, based on the clients' appetite to risk and anticipated retirement needs.
TCF is a strong and positive goal and it is good to see the way the industry is embracing and benefiting from principles-based regulation. In research in March 2007, 61% of 341 advisers questioned said that their firm is benefiting from implementing TCF. TCF must be part of the culture of a business and at the heart of everything the business does. Thus it is encouraging to see that most advisers feel that it continues to benefit their business, as it has been a requirement for many years. Naturally for some businesses documenting and evidencing how they adhere to TCF principles has involved more work than for others, but as a whole the industry is moving in the right direction. All advisers and providers must now ensure that the TCF principles sit at the heart of everything they do, and by regularly reviewing products and their clients' attitudes to risk ensure that the intended outcome is indeed made a reality.
John Enos is managing director, marketing and distribution at The Hartford
The industry has embraced TCF principles, but there's plenty more work to do. Providers and distributors need to work closely together to ensure they deliver on TCF principles - if not, it just won't work for the consumer.
As the FSA research shows, smaller firms find it harder to comply with new regulations. Often they don't have the infrastructure or compliance department, and need help from providers and the regulator.
The real measure of whether TCF is being embraced will come further down the line when outcomes are measured, not just process. A key measurable outcome is customer service. That's why The Hartford supports the introduction of additional customer research. In the US, for example, regular research by independent organisations like DALBAR has drastically improved service levels, to the extent that service has become a key differentiator for providers.
DALBARS's research allows customers, those people we're supposed to be treating fairly, to make informed choices about the levels of service they can expect. This rewards the good and disadvantages those offering poor service thus creating a virtuous cycle.
A service like DALBAR could play a role here in the UK in terms of advisers having better information with which to select their providers - this would be especially useful for small businesses.
Overall, advisers and providers need to embrace TCF principles and work more closely together. However, we also need regular independent assessment that measures outcomes. The Hartford is committed to any initiative which improves customer service and has embraced TCF.
Bob Perkins is technical manager at Origen
Most IFAs are taking the matter very seriously, if recent press coverage and statistical evidence from the FSA is accurate. There is evidence from the FSA's own progress report that there are only relatively few that show a complete lack of interest and that has tended to be among small firms. The fact appears to be one of slow progress rather than total disregard for the requirements and deadlines.
Of course, there is a big difference between complying with regulatory deadlines and putting the theory into practice.
The deadline for the implementation stage of TCF passed in March 2007 and further regulatory deadlines are in place for firms to demonstrate that they can test their procedures and that they are treating customers fairly on a consistent basis.
The implication in the FSA's report is that they cannot place sufficient reliance on some firms to deliver the right outcome for customers, which means that they will resort to enforcement. It is therefore in the interests of the firms concerned to demonstrate that they are taking this more seriously than it seems.
Tim Sargisson is managing director at IFG Financial Services
I remember reading the FSA's Treating Customers Fairly A Progress Report, in June 2002. However, I questioned what impact this initiative would have on the IFA community. After all, IFAs don't have customers, we have clients. Surely this must be aimed fairly and squarely at the product providers, the building societies and the banks. They have customers not us.
Five years on the FSA has kept its foot on the pedal and any regulated company that is committed to growing its business has to take TCF seriously and embrace its principles.
But have we, the IFAs?
We still have distortions in the market in terms of commission; different amounts depending on the product sold. The adviser or the firm that hasn't moved onto taking a regular fee or trail will have a hard job convincing the FSA that they are TCF. A client's financial needs can rarely be seen as an isolated event. Every IFA claims he only deals with 'high net worth clients' and that includes 'policy floggers'
IFAs need to scale back their dependency on product providers where inducements still thrive for such things as marketing activities, conferences and even Christmas parties. It's not TCF to direct business to inferior products offered by product providers. Know your market and give best advice.
Janette Weir is director of IQ Research
There is a much-touted statistic that it costs 10 times as much to generate a new customer than to keep hold of an existing customer. If this is in any way close to the truth for the life industry, providers should be falling over themselves to embrace any measures which will increase customer retention and reduce costs.
There is some evidence that TCF is having an impact. Some leading providers have re-organised to create business-in-force divisions - but is this truly a TCF measure or a by-product of large parts of the business effectively being run off? Wraps are a strategic play to get assets under management, but they are slow to take off, and advisers struggle to understand how they will fit with their business model.
The most telling evidence that TCF has a long way to go is the latest batch of quarterly results. While the life industry is measured and rewarded for new business and new business alone, City analysts continue to show little interest in embedding retention measures into company valuations. TCF will continue to be seen as a stick administered by the FSA rather than a carrot which will deliver the much needed cost efficiencies to the industry.
Paul Wilcox is chairman and technical director at WAY Group
As a product provider our responsibilities under TCF should be clear. We must design products which are appropriate for (our understanding of) our target market, promote them with clear, understandable information and ensure that they perform and deliver benefits in line with our promises.
We have always attempted to treat both our supporting IFAs and our end customers fairly, since to do otherwise will always hold negative long-term risks for our business. However, when it comes to product design there are several schools of thought about what an appropriate product is.
IHT mitigation is one such area which is already complicated enough because IHT advice is not regulated although the fund selection which is integral to such planning is. We could opt to design plans which are simple to understand, sell and service but which do a relatively poor job for the client in terms of flexibility (such as the straightforward discounted gift approach) OR we could go for the more complex and infinitely more flexible approach of a flexible scheme. Of course the latter is more complicated, more difficult to sell and much more difficult to administer BUT it could make a dramatic difference if the client's circumstances change once they have gifted their moneys away. We will continue to do as much as possible to assist our supporting IFAs to ensure our mutual clients are aware of the potential long-term benefits of the complexity - to cover future unknown contingencies - which is inevitably part and parcel of sophisticated IHT planning.
Ironically to fulfil the TCF requirements we could just finish up, as many of the major providers have, selling simple, inferior products. This seems a retrogressive step which we will avoid.
Dave Wilson is sales director of In Retirement Services
My personal view is that the TCF and principles based approach is entirely consistent with good business practice, as any business, which involves giving advice relies on its reputation. This means ensuring that the advice is appropriate; both in terms of the letter of the law and applying ethical and moral guidelines, and nowhere is this more true than dealing with elderly and potentially vulnerable clients.
However, TCF has its failing in that, what I consider is best practice could be fundamentally different to someone else. It is this ambiguity that causes me some concern. For example, we do not believe that equity release should be advised over the phone. However, other organisations applying exactly the same regulatory regime are happy to do so.
Our approach to TCF starts at the sharp end with a remuneration structure that rewards the quality of advice and not the size of the sale. All of our consultants are paid a base salary with incentives that are impartial of the case size and product, even where this is not in line with the business' 'commercial' drivers. Furthermore, TCF requires constant monitoring with customer feedback mechanisms to monitor both internally and externally.
I am a firm fan of TCF, but acknowledge that it relies on it being approached in both the letter and spirit of the regulations.
Since November 2008
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PARTNER INSIGHT: For many advisers, outsourcing to a multi-manager or discretionary fund manager makes sense, allowing them to focus on the adviser-client relationship
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An added tier of asset management can of course deliver additional benefits for certain investors, writes Graham Bentley - just be sure you can justify it to the regulator and, especially, the client