Financial service providers (FSPs) shoulder the responsibility of keeping their clients informed about changes made to financial products by product providers. However, staying abreast of continual product adjustments can be a challenge. This article explores the responsibilities of FSPs in this regard, the common issues they face and strategies for overcoming these challenges.
Who is responsible for keeping clients informed about product changes?
FSPs have a fiduciary duty to act in the best interest of their clients. Under the Financial Advisory and Intermediary Services (FAIS) Act and the Treating Customers Fairly (TCF) Outcomes, they are required to provide clear, honest and diligent advice, including promptly communicating any changes made by product providers.
For example, TCF Outcome 3 requires that customers be given clear information and are kept appropriately informed before, during and after point of sale. Moreover, TCF Outcome 5 states that customers be provided with products that perform as they have been led to expect, and Outcome 6 ensures customers should not face unreasonable post-sale barriers.
When it comes to product changes, FSPs are responsible for:
• Timely communication: Inform clients about any product changes promptly. This includes explaining the nature of the changes and their potential impact on the client’s financial goals.
• Guidance and alternatives: Offer guidance on potential alternatives if the product changes negatively affect the client’s financial strategy.
• Clarity and understanding: Ensure clients fully understand the changes and their implications. This can involve detailed discussions and personalised explanations.
Common issues faced by FSPs
Properly updating clients about changes implemented by product providers is easier said than done. FSPs face several challenges, including:
• Lack of information: In some cases, product providers fail to inform FSPs and their Representatives of changes. Representatives may only become aware of changes after scrutinising policy wording themselves or when a claim is denied. Clients often blame the FSPs, leading to reputational damage and potential loss of clients.
• Volume of changes: Keeping up with the sheer volume of changes to products and policies is increasingly difficult. FSPs need to inform clients of changes, offer guidance and alternatives and ensure clients understand the implications, which can be burdensome in an already complex compliance environment.
• Client misunderstandings: Ensuring clients fully grasp the implications of changes can be time-consuming and challenging.
Practical solutions
To effectively manage these challenges, FSPs can adopt the following strategies:
• Invest in staff training: Regular training and education on regulatory updates and product provider changes are essential. Product specific training must be completed and assessed each time there are changes to the features of a product.
• Implement robust compliance systems: Embedding strong compliance systems and policies in your FSP can help you track product provider communications and changes, as well as how these updates are communicated to your clients.
• Enhanced communication: Use multiple communication channels such as emails, newsletters and face-to-face meetings to ensure clients are well-informed. Utilise technological tools for secure and efficient communication to streamline the process.
Change on the way
Currently, it can be a little unclear who is ultimately responsible for informing clients of product changes, but this task often falls on FSPs. The upcoming Conduct of Financial Institutions (COFI) Bill aims to rebalance this responsibility between financial advisors and product providers.
Existing legislation requires product providers to equip and provide advisors with timely and accurate information and advice on their products. They should offer FSPs training and support; clearly communicate any changes, including special terms, conditions and exclusions; and monitor and assist in resolving customer complaints to ensure fair outcomes. COFI is expected to offer even greater clarification on the responsibilities of product providers in this regard. This is also more consistent with the outcomes-based TCF principles that follows the whole product life cycle.
Clear communication and TCF are paramount
FSPs bear the primary responsibility for keeping clients informed about changes to products or policies – and they play a vital role in ensuring consumers are aware of these updates.
Staying current with these changes can be challenging, but FSPs must take the necessary steps to fulfil this responsibility. Implementing robust compliance policies and procedures in their businesses will help them stay updated, understand how changes affect their clients, effectively communicate these changes and provide advice on alternatives if necessary.
Maintaining open communication with product providers is essential for FSPs to stay informed. And if a product provider repeatedly fails to communicate changes effectively, FSPs must consider whether continuing to offer products from this product provider is worth the hassle and administrative burden and how it may negatively impact the financial advisor’s TCF outcomes and reputation.