By Jean Lombard, 31 July 2013
While the implementation of the regulation can be costly and time-consuming in the short term, the long-term benefits include more transparency, accountability and trust in the industry.
TCF will come into effect in January 2014. It was introduced by the Financial Services Board essentially because of the negative perceptions that clients have around fees, inappropriate services and the fact that financial services providers have more information and expertise than their customers and are perceived to be using this superior knowledge to the detriment of the customer.
Many companies are already client-centric in their approach, but TCF will require them to actually be able to demonstrate that the fair treatment of customers is central to their culture.
At a regulatory seminar hosted by Glacier by Sanlam earlier this year, guest speakers Andrew Zeller of TeamBank in Germany and Rick Eling of Sanlam UK highlighted the positives and the opportunities available for those who get this right.
Despite the magnitude of the changes facing us, they pointed out that much of it is common sense. Rick summed up the essence of TCF by saying: “Do what you say you do. Have a process. Explain the process. Look after the client, not just the money. It’s really not that hard.”
He went on to say that TCF is more than a process, it’s a cultural issue. Only by establishing the right culture, can companies convert their good intentions into actual fair outcomes for consumers.
This speaks to organisations getting back to basics. Putting values first doesn’t have to mean doing business at the expense of making profits. A company’s core values should ultimately inform its long-term goals and objectives. It’s also important to hire people who share the same values as the company. Qualifications can be earned, but character, drive and caring for customer needs are inherent qualities. Make sure that how you do things is as important as what you do.
In 2006, Germany’s TeamBank began implementing a fairness strategy that included shortening its contracts, encouraging open and honest relationships with its clients, appointing fairness brand ambassadors and encouraging employees to challenge decisions that contravene fairness. The result was that TeamBank actually increased its market share, despite not being the cheapest provider. Its brand value skyrocketed and it became the leading loan provider in the German market.
The goal behind the new raft of regulation is that we create a savings culture by serving informed and empowered customers. With increasing longevity a worldwide phenomenon, the fear of outliving one’s savings is a very real concern for investors. This is where the role of the adviser and getting advice from a qualified professional are becoming more and more important.
Rick pointed out that service, not products, is what determines an adviser’s remuneration under the new legislation (Retail Distribution Review in the UK; currently known as Intermediary Remuneration Review in SA). Previously, an adviser would be called upon to fulfil the role of selecting the appropriate funds for a client. Under the new model, an adviser is more likely to meet with the client, identify the client’s financial objectives, turn those objectives into the level of risk required and then appoint a fund manager to manage that level of risk.
In essence, the fund manager works for the adviser, according to the client’s mandate. What this cultural change means for the adviser is that the product no longer drives the business, but service level, planning and strategy do.
Three key things that advisers can do to ensure the success of their practices in the future are:
Although much of the legislation is common sense, advisers who implement the following will be the ones who thrive:
Death and taxes have always been a given, but in the new environment we can add regulation to this list. It’s here to stay and those who embrace it and work with it will be the success stories of the future.
To read more on TeamBank’s fairness strategy: Harvard Business Review, “Finding the profit in fairness,” by CH Loch, FJ Sting, A Huchzermeier, and C Decker. September 2012. P111 – 115.