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How to demonstrate fair treatment of customers – and why evidencing it is important

03 May 2022 Elzabe Botha and Jan Scholtz, Directors at Compli-Serve Gauteng
Elzabe Botha, Director at Compli-Serve Gauteng

Elzabe Botha, Director at Compli-Serve Gauteng

Jan Scholtz, Director at Compli-Serve Gauteng

Jan Scholtz, Director at Compli-Serve Gauteng

For many Financial Services Providers (FSPs) it is “business as usual” when it comes to treating customers fairly, but it is important to also be able to demonstrate – through business processes – that TCF principles (Treating Customers Fairly) have been embedded in an FSP. The challenge is to evidence compliance with principles because TCF does not allow for “tick-box” compliance.

Recapping TCF

TCF is an outcomes based regulatory and supervisory approach designed to ensure that regulated financial institutions deliver specific, clearly set out fairness outcomes for financial customers. Regulated entities are expected to demonstrate that they deliver the following six TCF outcomes to their customers throughout the product life cycle, from product design and promotion, through to advice and servicing, complaints, and claims handling:

• Customers can be confident they are dealing with firms where TCF is central to corporate culture
• Retail products and services that are marketed and sold must be designed to meet the needs of identified customer groups and are targeted accordingly
• Customers are provided with clear information and kept appropriately informed before, during and after point of sale
• Where advice is given, it is suitable and takes account of customer circumstance
• Products perform as expected, and service is of an acceptable and expected standard
• Customers do not face unreasonable post-sale barriers imposed by firms to change product, switch providers, submit a claim or make a complaint (points summarised from the FSCA’s website)

Here are some practical examples to prove that TCF is a culture within an average advice-providing FSP

• Regular performance reviews are conducted, and staff performance criteria includes ratings relating to client service (all staff) – good service is rewarded; bad service is addressed and consistency throughout the client relationship is monitored.
• TCF training is provided to all staff members and allows for discussions around what good client service looks like.
• TCF is an agenda item for management meetings and fair customer outcomes are considered when business decisions are taken.
• The complaints process is defined, and all staff members are aware. It should be clear that management takes complaints seriously and that proper investigations are conducted where required (route cause analysis). The complaints process should be structured with the client base in mind.
• Fees, costs, commissions, etc should be clearly disclosed and should always be justifiably fair.
• Potential or perceived conflict of interests are properly disclosed to clients and proper comparisons are done to ensure that clients can make informed decisions.
• Client surveys can also provide evidence of client satisfaction/dissatisfaction. It is important to show that the results of these surveys are reviewed, and appropriate action is taken where required.
• Depending on the size of the FSP there should be pre- and/or post sale compliance checks in place and these checks should consider the quality of advice. Where a product generates commission, the amount should be properly disclosed and explained to the client together with (where applicable) why this commission generating product is more suitable.
• The FSP can demonstrate that it employs sufficient staff members to service the number of clients and communicates with clients in a language they understand.
• All documentation provided to clients is neat and easy to read and takes the client’s level of knowledge and understanding into account, provided in a format clients can access.
• The FSP requires all advisors and support staff to set automatic replies with alternative contact details when they are out of office.
• The FSP has a process in place to proactively review client portfolios / circumstances / markets when changes occur. If the FSP is aware of circumstances that could negatively affect the client and that can be mitigated, action should be taken as soon as possible.

Answer the following questions honestly:

• If you were your own client, would you be happy with your service?
• If you were in the client’s shoes, would you place business with the recommended provider in the recommended product?

The TCF principles form part of the Conduct of Financial Institutions Act (COFI), which most likely will become effective this year. It is therefore advisable to be prepared; discuss this with your compliance officer or use the self-assessment tool on the FSCA’s website.

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