FSCA warns of TCFs importance

Over the past two years, the Financial Services Conduct Authority (FSCA) has increased its efforts to ensure that insurers and financial advisers adhere to the six outcomes that are stipulated by Treating Customers Fairly (TCF).

While many insurers and financial advisers have been studiously adhering to these outcomes, there is some concern that there are areas of ambiguity when it comes to TCF implementation within the retirement industry. 

As part of its efforts to improve its communication with the insurers and financial advisers, the FSCA discussed this topic in its latest FSCA Bulletin. The implications on the industry are extensive, so we have highlighted a few key points. 

Meeting specific needs

TCF Outcome 2 points out that products and services marketed and sold in the retail market need to be designed to meet the needs of identified customer groups and are targeted accordingly. 

Retirement fund products and services should be developed and administered to meet the needs and expectations of members and former members of the retirement fund, who include: 

- beneficiaries of members or former members of the retirement fund;

- nominees or dependants of members or former members of the retirement fund;

- employers participating in the retirement fund; and

- spouses or former spouses of members or former members of a retirement fund. 

“This is to achieve the goal of providing appropriate retirement income for members. Boards should not be influenced or induced by current or potential providers of financial products and services, which may result in the products and services purchased by the fund being inappropriate or not offering value for money for the retirement fund, its members and beneficiaries,” says Olano Makhubela, Divisional Executive for Retirement Funds at the FSCA. 

Complaints and service call data must be considered in assessing the suitability of the products, investments or services provided to members and/or beneficiaries. Bundling of products and services, or excessive incentives to funds, may lead to inappropriate or unnecessary products or services. 

Appropriate risk profiling

An additional part of Outcome 2 points out that the Board must ensure that the retirement products provided by the fund are appropriate after considering the needs and risk profile of the members and beneficiaries. 

The board must also understand and monitor the risks of the retirement fund products/investments offered by the fund. It must further ensure that members and beneficiaries have enough information to make an informed decision in selecting investments and other options offered by a fund. 

“Surveys on the needs of members and beneficiaries must be done to ensure that the services provided meet the needs of the members and beneficiaries, and should not be conducted by consultants and intermediaries, who may tend to design retirement products that will be to the benefit of the consultant / service provider, giving rise to a conflict of interest,” says Makhubela. 

Advice is key

According to Outcome 4; where customers receive advice, the advice is suitable and takes their circumstances into account.  Where boards and/or members of retirement funds receive advice, the advice must be suitable and take account of their respective circumstances. 

“Boards must at least ensure that the intermediaries appointed are, where applicable, appropriately licensed, understand the products and have enough expertise as well as ensure that they understand the risks of products and receive enough information on the possible risks involved before taking a decision,” says Makhubela. 

Boards must verify whether the adviser will receive any incentives from the service provider for selling a specific product and whether there are similar products on the market with which the product in question can be compared. 

Further, Boards must ensure that the product is suitable for the needs of the fund and its members. 

Minimal barriers please

According to TCF Outcome 6, customers must not face unreasonable post-sale barriers to change products, switch providers, submit claims or make a complaint. 

Retirement funds and members should not face unreasonable barriers to submit a claim, make a complaint, change products and switch providers where the rules of a fund allow for such choices. 

Boards must establish and implement an effective complaints management process. The complaints management process must not frustrate complainants due to insufficient resources or ineffective processes. 

“The FSCA has allocated the trustee toolkit as a mandatory programme for trustees, ensuring that trustees have the necessary skills to manage member funds. It will also continue to adopt a consultative approach to TCF implementation,” says Makhubela. 

Editor’s Thoughts:
TCF and the Default Regulations (which are due to be implemented in March) are both key pieces of legislation which will bring about major changes to the retirement industry. Will these changes be positive? Please comment below, interact with us on Twitter at @fanews_online or email me your thoughts jonathan@fanews.co.za.