Dominic Fraser-Smith discusses the implications of the new FSA Treating Customers Fairly (TCF) deadlines for equity release
The equity release market has grown significantly in recent years. At the end of 2007 the total number of equity release plans sold by SHIP members is expected to have reached £1.279 billion.
As this awareness and confidence continues to grow, the equity release market is set to increase significantly again in 2008. The recent full regulation by the FSA to include home reversions means that there has never been a safer time for consumers to consider equity release. The FSA is looking to make further improvements to the whole financial services industry including equity release through the Treating Customers Fairly (TCF) initiative.
In May 2007, the FSA published a report on their assessment of how successful firms had been in making the March 2007 implementation deadline. It has now issued further deadlines. By the end of March 2008, all financial services firms are expected to have appropriate management information or measures in place to test whether they are treating their customers fairly. In addition, by the end of December 2008, all firms are expected to be able to demonstrate to themselves and to the FSA that their TCF procedures are consistent.
The six outcomes that the FSA will measure firms against for TCF are:
1. Consumers can be confident that they are dealing with firms where the fair treatment of customers is central to the corporate culture.
2. Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.
3. Consumers are provided with clear information and are kept appropriately informed before, during and after the point of sale.
4. Where consumers receive advice, the advice is suitable and takes account of their circumstances.
5. Consumers are provided with products that perform as firms have led them to expect, and the associated service is of an acceptable standard and as they have been led to expect.
6. Consumers do not face unreasonable post-sale barriers imposed by firms to change product, switch provider, submit a claim or make a complaint.
What does this mean for the equity release industry?
Let's look at one outcome at a time.
Outcome one means that both providers and advisers need to show that they are satisfying customers' perceptions of the products and services, but more importantly that they understand the customers' needs and can advise whether equity release is suitable.
Outcome two can be interpreted to mean that providers and advisers must ensure that customer needs and feedback are fed into the product design. This means that product development should be genuinely customer-focused and not simply driven by a need to be more competitive in the marketplace. The marketing and sales processes behind any product or service should be targeted at the appropriate customer groups.
Outcome three relates to communication. Providers and advisers must use clear language and avoid jargon and financial terms, while providing the customer with enough information to allow them to make decisions on the products and services. They must be clear, fair and not misleading.
Outcome four is specifically about the advice that is given. Providers and advisers must take consideration and care of the customer's circumstances and future plans. This must take the form of responsible lending practices by ensuring affordability, impact on existing benefits, other people (i.e. inheritance), consideration for other options (i.e. downsizing) and emotional factors.
The link between the distributor and provider is also important. The distributor has a responsibility to ensure they understand all the information providers have given them. The provider needs to ensure that the information being provided to the distributor is of good quality.
Outcome five can be interpreted that a firm's communications and actions should not lead customers to expect something that can not be delivered. Furthermore, a firm should not lead a customer to expect a better service than they can deliver - the service received must be acceptable and the firm must provide clear information and be easily contactable. This is more so important in turbulent financial times.
Finally, outcome six outlines that providers and advisers should not put up any unreasonable barriers that make it excessively difficult for a customer to change product, switch provider or make a complaint, for example time delays, administration issues, fees etc.
We hope that these FSA deadlines to ensure TCF compliance will help the industry to focus on the customer, and what is best for them. Only by doing this will we build customer confidence in equity release and make it a viable retirement option for even more people.
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