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Fair trade

Treating customers fairly has become one of the main drivers of change in our industry during the last 12 months for all the right reasons. There is considerable variation in what different parts of the community see as the behaviour to treat customers appropriately.

p/>There is a great deal of work to do before we have a consistent view of what this entails.

To me, in a knowledge-based 21st Century econ-omy, treating customers fairly, among other things, means delivering the information they want when they want it.

Consumers should be able to be fully appraised of the exact state of their financial affairs, the progress towards meeting their objectives and any barriers they may be facing.

The systems exist today to give consumers access to such information on a 24/7/365 basis. Having said that, there must be the question of affordability.

There is a very active debate around the question of what is a fair price for people to pay for advice. Politicians – pressed hard by the consumer lobby – have insisted that we have a highly professional, actively regulated marketplace with a high degree of accountability and liability on the part of the person giving the advice.

Given the compensation culture and the flagrant excesses of the Financial Services Ombudsman, we seem to be in a market where IFAs are not so much providing advice as giving a financial guarantee to their clients.

Short of taking Shakespeare’s advice to “kill all the lawyers”, as an industry, we need to reduce significantly the costs of delivering and, in a world driven by TCF, maintaining that advice.

What advisers do not need is unnecessary costs and barriers being put in their way by product providers or the regulatory process.

Market practitioners will inevitably have frustrations with the regulators but if one looks at the extent of what the FSA has been trying to achieve in the last two years, it must deserve credit for a regulated process for both mortgage and general insurance in such a compressed timescale.

That is not to say that there are not inconsistencies in the way that the new activities and the existing regime for the designated investments are regulated. Even the most casual observer can recognise where improvements can be made. However, we have not seen the sledgehammer approach to regulation that was the hallmark of much of the early days of investment regulation in the late 80s and this is to be applauded.

One of the most obvious inconsistencies is the difference in attitudes between life companies and mortgage lenders on the release of client information. Life companies will provide an adviser with information throughout the lifetime of the policy but mortgage lenders, while happy for the adviser to introduce clients as potential borrowers, in the vast majority of cases, as soon as the loan has been completed, the lender takes the view that the adviser has no ongoing role in the transaction and will decline to release any information.

Inconsistencies in regulatory approach do not help this situation. Take, for example, the adviser who provides an income drawdown product to a client. They have an explicit regulatory obligation to provide triennial reviews. By comparison, if the same client has a mortgage arranged via the adviser, MCOB 3.7.3 bans “unsolicited real-time qualifying credit promotions unless the firm making the call has an established existing customer relationship with the consumer”.

You could have a situation where, as part of the retirement planning, an adviser has arranged one type of contract on which they are required to contact the client and another where, without the ongoing relationship from the income drawdown, they might be precluded from contacting the client.

To avoid such questions, advisers should make it clear to consumers at the time they are giving the original advice that they will contact the customer when the special rate period runs out to review the position.

If, in carrying out such a review, a lender refuses to provide information to the adviser, should the adviser encourage the client to lodge a complaint with the FSA because the lender has breached TCF?

In these circumstances, lenders will often try to hide behind the Data Protection Act, claiming that they cannot release information for reasons of client confidentiality.

This is little more than a ploy to conceal the fact that the lender wants to do as much as possible to withhold information from the broker for fear that the broker may continue to monitor the competitive position of the loan and advise if better terms are available elsewhere.

A similar situation exists in relation to closed-book investment products, where I strongly believe the regulator should impose a respon-sibility for the providers or their outsourced administrators to make extensive information on the investment freely available electronically to the consumer’s adviser.

It would appear that TCF is heading in the direction where advisers will have an obligation to monitor the continuing suitability of the advice they have given. The technology increasingly exists today to allow advisers to do this, provided that they can be kept fully appraised of the latest information on these investments and, where all the necessary information can be delivered by the provider electronically, portfolios can be monitored automatically by systems that will flag when portfolios move outside the agreed target ranges.

For most people, their home is their biggest finan-cial investment and their mortgage is their biggest outgoing. If it is appropriate for advisers to monitor the long-term suitability of packaged investments, why is it not equally appro-priate for them to monitor the competitive position of their biggest monthly outgoing which underpins their biggest investment?

The life and pension industry is delivering the means to keep advisers notified electronically of the details of clients’ investments. This is being used by a limited number of advisers to make the information available to their clients online.

The fund management industry is moving slowly in the same direction. Why should the FSA not impose an obligation on all providers to offer information in this way? It has the potential to reduce the cost of advice significantly.

The FSA has the oppor-tunity in applying the rules on TCF to require a consistent approach from all organisations offering consumers products. It would be a great shame if this opportunity was missed.

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