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In on the interaction

Integrated technology seems to be the answer to the regulator’s treating customers fairly demands

Have you been following the recent plethora of FSA speeches on treating customers fairly? Obviously, I would not be surprised if these have passed you by but I would strongly recommend that you do have a think about the areas of advice where the FSA has specifically expressed concern and also about the implications for provider and intermediary relationships in the future. It is all getting rather interesting.

One of the advice areas that the FSA has looked at is affordability. Other areas that the regulator will focus on in the coming year include networks’ control over their appointed representatives, documentation, lifetime mortgages, self-cert mortgages and training and competence.

For most IFAs, perhaps the most important area the FSA is making noises about is the quality of investment advice, especially the extent to which advisers successfully consider the wider personal financial circumstances and attitude to risk. The FSA has issued a self-assessment toolkit to help intermediaries assess their progress and status across all areas of TCF.

But is it all relevant to advisers? A lot of the TCF focus seems to be on the stages of the product lifecycle, from development through to after-sales care. Of course, this does involve intermediaries as they will often be distributing the products and giving the advice to customers but on the whole, it is quite provider-centric.

But the second level of TCF does have some pretty worrying implications for providers and intermediaries collectively as it is specifically about how firms interact.

The FSA is making it very clear that all parties must have due regard to the ultimate impact and experience to the end customer.

What are the implications? Well, where a firm manufactures products for intermediaries, they are not only responsible for product design, testing, appropriate marketing and intermediary training but they must also know whether their products reach the right type of customer. We need to think about the practical issues here.

Providers are not exempt from issues of product suitability, even when an IFA makes the sale. Management information and reporting (a valuable commodity for intermediaries) will need to be shared.

The conclusion has to be that integrated technology will become vital both to join up the providers and the intermediaries distributing their products but also to deliver consistent and robust customer service.

It is becoming obvious that the FSA will be looking for greater clarity around manufacturer and intermediary responsibilities, not only in terms of product suitability but also in terms of tools and research and the ultimate advice given.

Consider the FSA concerns regarding affordability and, perhaps more importantly, investment advice, objectives and risk profiling. There are already a wide range of tools in the market to support this such as portfolio planning tools but it will not be long before the quality of these tools comes under scrutiny.

In fact, there are rumours that the FSA is already looking at one provider tool, in relation to the ultimate responsibility for the subsequent advice given.

The FSA is undoubtedly looking closely at where the responsibility for the outputs of tools and ultimate advice rests. This could lead to some pretty fundamental rethinking of what tools are offered and whether they should be available to IFAs where the provider has no direct influence on the customer advice.

As with TCF itself, there are no definitive rules on what advisers (and providers/ suppliers who offer their products?) should look for.

At the highest level, fair treatment has to be reflected in the firm culture, with a focus on treating customers fairly which is not only continuous but results in behavioural change which is noticeable and significant.

The next FSA TCF review is likely to throw up a lot of new or more problematic issues. There is such a long way to go with this. Be warned. Apparently, merely following the rules is not enough to comply when TCF really starts to take hold. Simple, eh?

Jo Smith is a director of integrated distribution and a consultant with Teamspirit

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