Regulation  

TCF: Fair game

TCF: Fair game

The issue of fairness is regularly under scrutiny in the financial sector, with mis-selling scandals such as payment protection insurance (PPI), endowments and most recently the failure to properly ascertain attitude to risk. The impact of these was so severe that many banks were forced to withdraw from the advice sector, at least until now.

After a short exodus, banks are re-entering the market. Confident that previous misdemeanours have been addressed and now the so called ‘advice-gap’ can be plugged. But how can anyone be sure that the same issues will not re-surface, further tarnishing the reputation of an already battle-weary industry?

So how is treating customers fairly defined? According to the FCA, “A firm must pay due regard to the interests of its customers.” The six consumer outcomes are detailed in Box 1.

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Misunderstood

Danny Cox, chartered financial planner and head of advice at Hargreaves Lansdown, explains TCF is widely misunderstood and does not necessarily mean equal treatment. “You can segment the services you offer clients and charge them differently, or clients can choose services themselves, without either being a TCF problem. Fair treatment in this case is to ensure the client understands the service they are getting (or not getting) and the cost of that service,” he says.

In March 2014 Santander UK was fined £12.4m by the regulator for widespread investment advice failings and the fine was followed by a number of branch closures and temporary abandonment of financial advice.

The FCA at the time said there was “a significant risk of Santander UK giving unsuitable advice to its customers, its approach to considering investors’ risk appetites was inadequate, and for some people it failed to regularly check that investments continued to meet their needs despite promising to do so.”

Earlier this year, Santander announced plans to return to the advice sector, with 225 investment advisers expected to be in place by the end of March.

However, it will only offer advice to customers with more than £50,000 to invest, which has led some to question whether its objective to fill the advice gap is convincing.

Matthew Bird, financial adviser at Newport-based Seer Green, says, “I think it is narrow-sighted and unfair to neglect clients with pots under £50,000. Obviously the advice process must be worthwhile to the bank and they would be prudent to operate a minimum fee structure to ensure it is profitable.’’

However, Kim Barrett, chartered financial planner and fellow of the Personal Finance Society, believes firms have as much right as consumers to select who they deal with, “When you’re entering into a contract, it has got to be fair to both sides. I don’t think there is anything wrong with choosing not to take on business.”

Santander says using appropriate controls, governance and technology will help to bridge the advice gap. Alan Mathewson, managing director, wealth management at Santander UK, expects 25 per cent of investment transactions to be conducted online over the next couple of years.

Here and now

“To a large extent it is why robo-advice is happening now,’’ says Benjamin Sear, financial adviser at Martin-Redman partners in Bury St Edmunds. “Low value clients will be penalised by fees and charges which may seem high in comparison to what they are investing. Some IFA firms are working on a similar basis so why should banks not be allowed to reach similar conclusions and target clients and markets where they feel they can add value and generate return?”