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Fair warning

The March 2007 deadline has concentrated minds on incorporating the TCF principles in business

Dealing with chance is what we are about and we tend to take it all in our stride.

Now, do not glaze over. I know issues of a regulatory agenda are not something we all naturally embrace. However, TCF is different, not least because it is causing many a sleepless night in the homes of providers and advisers up and down the land.

Last month, the FSA published its latest document entitled, Treating Customers Fairly – Towards Fair Outcomes for Consumers. This contained a surprise for the industry in the form of a deadline. Firms have until March 2007 to start putting into practice their strategies and plans for TCF.

One of the key messages is the FSA’s aim to achieve six outcomes for retail investors:

  • Consumers should be confident that the firms they deal with have the fair treatment of customers at the heart of their business ethos.

  • Retail products and services should be designed to meet the needs of specific consumer groups and only targeted at those groups.

  • Consumers should expect to receive fair, clear information at all points of the sales process – before, during and after.

  • If consumers receive advice, it should be suitable and pertinent to their needs and circumstances.

  • Consumers should be provided with products that perform as they were led to expect. The service standards must be acceptable and as they were led to believe.

  • After sale, consumers should not encounter unfair constraints to change product, switch providers or make a complaint.

The crux of the matter is how the FSA will measure progress against these outcomes. This will take the form of information gathered from day-to-day supervision of firms, the FSA’s regular thematic work and mystery-shopping exercises.

Progress is loosely defined by the FSA as being part of a four-stage process. This is intended to give firms an idea of how to monitor their progress so far and is based on:

  • Awareness.
  • Strategy and planning
  • Implementation.
  • Embedding.

From our experience, the majority of firms are making good progress with their implementation of TCF strategies but there are a minority that are lagging behind and these firms have been put on alert by the FSA’s March 2007 deadline.

The FSA says: “We have set a target. We expect all firms to have reached at least the implementing stage of their TCF work in a substantial part of their business by the end of March 2007.”

So, for many, the clock is ticking. In recent work undertaken by the FSA around the quality of advice, it found many examples of good industry practice but there were also an unacceptable number of firms where significant flaws were identified. Unfortunately, the exercise did not identify the status of the advisers exhibiting good industry practice and those who did not. But at least we know what we are being judged on and when we need to have our house in order.

With most schoolchildren having recently received their end-of-year reports, how might our industry TCF report card have read? “Significant progress has been made this year but there is still room for improvement” would not be too far off the mark.

Let us look forward to next term and see if there is anything which could help get us off to a good start.

The FSA has published a number of items on its website which could prove useful in looking at the intricacies of TCF. These include a self-assessment form, case studies on various aspects of TCF and various cluster reports which give examples of good and bad industry practice. The FSA has run a series of workshops and is planning more in the future. A number of providers, including Prudential, have also been active in this area.

Treating customers fairly is an opportunity for our industry to rehabilitate itself in the eyes of our doubters and prove to consumers that they do come first. A number of firms have already accepted the challenge and have firmly embedded TCF into their culture and processes. These firms are now enjoying better customer relations and improved commercial advantage. They are easy to identify too – they are the ones sleeping like babies.

Frank Morton is investment development manager at Prudential


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