All roads lead to Rome Trends in international compliance
01 October 2013 | Magazine Archives FAnews & FAnuus | Compliance | Richard Rattue, Compli-Serve SA, Phil Billingham, The TCF Partnership
Convergence is the word we think of when talking about compliance and international trends. It portrays an image of different jurisdictions moving towards a common model, but doing so in a way that reflects the particular issues and limitations of their domestic demographic and economic situation.
That sounds so much better, and actually is better, than ‘We are behind the UK or Australia or Singapore or whoever’. It’s also more accurate. However, the next question is: what is this model that we are moving towards?
It seems a little vague, but offers four guidelines:
1. There must be clarity about your role
That is, are advisers simply salespeople who sell or distribute products? And are they therefore remunerated to sell, not advise? Should consumers take a buyer beware approach to the transaction or are advisers really the agents with a duty to care for their clients? If so, should they be labelled as independent, and be accountable for any income received? Even scarier, should they not be banned from receiving third party payments (commission)?
Ten years ago, we said it would never happen. Today Holland, Australia, India and the UK have gone a long way down this path. Others will follow, and soon.
2. There must be transparency about costs and charges
In this context, transparency means not only that you must disclose, but that this disclosure must be clear, in real money and not just percentages. It must be done early enough so that the consumer can make an informed choice as to whether or not to invest or insure or take the recommended action.
In investment product terms, we’re moving away from vague and opaque references to costs looking at the more detailed Total Expense Ratio (TER), and eventually taking account of the total cost of product ownership.
3. Consumers must be treated fairly
Principle driven, and transcending mere rules, it judges process not on ‘buyer beware, read before signing terms’, but on was the outcome fair?
Fair seems to be broadly taken as; the product and service behaving in accordance with the client’s legitimate expectation.
Note the word ‘legitimate’. In other words, this does not, as many claim, tilt the scales totally in favour of consumers, but seeks to level the playing field where possible, to deal with the gap in knowledge between advisers and consumers.
4. Advice must be suitable
This sounds so easy. But it turns out the regulators don’t mean that you have to sell the best thing you choose to sell, but that if you don’t have something suitable, don’t sell anything at all.
Suitability implies good knowledge of the client’s needs and circumstances, and that advisers have a deep understanding of the products, how they work and any relevant tax implications.
In turn, product providers must ensure advisers are well educated on their products, and that marketing, promotional and other product material is clear, fair and not misleading.
5. Make a difference
We live in a community where many people are vastly ignorant about financial products and the importance of saving and insuring adequately. The providers of such products should be able to make a positive difference to the lives of their customers and through their advice and support be able to make a lasting difference to their lives. Taking the high road here will surely pay dividends for brand value and overall business health.
Most of this will sound familiar to a South African audience. In many ways, South Africa is ahead of many on this journey. In other areas, there are changes ahead.
Around the world, smart firms are gauging the direction of travel, and ensuring they stay ahead of the pack. Some in South Africa are already doing this. Will you follow?
