The six steps to Treating Customers Fairly

02 April 2012 Phil Billingham, Regulatory Change Specialist

In the February edition of FANews we looked at the overall “shape” of the Treating Clients Fairly (TCF) regime and discussed the first of six outcomes, the fair treatment of customers. It is now time to look at Outcome 2 which deals with products and services...

A number of industry commentators believe the first TCF outcome is a bit ‘woolly’. Given the difficulty in defining "fair treatment” they may have a point. The good news is that Outcome 2, if anything, is too specific.

Outcome 2 requires that: "Products and services marketed and sold in the retail market are designed to meet the needs of identified consumer groups and are targeted accordingly.” It demands the attention of both product provider and adviser... Let’s unpack the products and services requirement further.

A two part process

The regulator requires that every financial product is "designed” to meet the needs of specific consumer groups. There is no longer room for the flippant "meet sometimes if we are lucky” approach to product design. To make sure they get it right providers should split the outcome into two component parts.

Part 1: The needs of identified consumer groups.

The second TCF outcome requires that each industry stakeholder – product provider to intermediary – has clear target markets in mind when designing products or services.

It is easy to focus on products and product providers at this early stage, but the outcome clearly includes services too. What this means is that advisers and brokers are within the scope of the second TCF outcome. Our task is to identify and understand the clients who will benefit from our products (which we source from providers) and services (advice).

Gathering information

How do we define this target market? A good exercise is to consider the following:

1. Demographic information such as age, gender and income
2. How experienced and informed potential clients are with regard financial products
3. The concerns and challenges potential clients face
4. The problem set we hope to provide solutions to

We call this approach an ‘Avatar’ approach… By walking the proverbial mile in our potential client’s shoes, we can formulate a clear definition of the person who is representative of our target market.

We must stop talking about our ‘average’ client and start thinking through our ‘modal’ client profile… These are two entirely different concepts – but we already know that!

Part 2: Marketed and sold – and designed to meet.

The second step toward achieving Outcome 2 involves testing our products, services and the marketing of them to ensure we meet the needs of our target audience. At the same time we must consider and protect those outside our target market, where appropriate. What does this mean in practice? To take a very simple example, let’s say that we have identified retirees as the target market for an investment product.

An advertising campaign featuring Ferraris, scantily clad young women, small grey on black font and a product built around a ‘racy’ investment strategy is not only inappropriate, but asking for trouble. Such a strategy will certainly run foul of TCF!

No more bells and whistles

It is a silly example – but do we always stop to think about the appropriateness of our marketing strategies? What about the bells and whistles we add to products during the design stage? Do we think before marketing clever ‘tax efficient’ structured products linked to exotic markets to clients who want to save a few rand towards their old age? And how do we justify the high surrender or switch fees on the products sold to clients who require flexibility above all?

Outcome 2 is core to the regulators concerns. It does not prevent product innovation… Nor does it outlaw a proactive and commercial approach to marketing. It DOES mean that products and services must be fit for purpose and designed with the needs and concerns of the intended consumer in mind.

Quick Polls


How confident are you that insurers treat policyholders fairly, according to the Treating Customers Fairly (TCF) principles?


Very confident, insurers prioritise fair treatment
Somewhat confident, but improvements are needed
Not confident, there are significant issues with fair treatment
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