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Watch out when implementing TCF

Small brokers in particular must ensure the regulator does not uncover significant TCF failings as consumers are likely to see the initiative in a positive light, says Justine Tomlinson

When the Financial Services Authority first released details of its Treating Customers Fairly initiative I was sceptical, as were many others. Nobody disagrees with the principle but the practicalities of interpreting and measuring it seemed unrealistic.

After all, the FSA already sets out the rules for brokers on how to conduct mortgage and insurance advice and surely this is the practical and equitable solution to measuring how fairly customers are being treated.

Many brokers have also ex-pressed concern about the FSA’s staff, and whether they have the experience and aptitude to re-solve financial conundrums. How many have given face-to face-advice to customers?

Then there’s the issue of the phrase itself. Being told to treat customers fairly implies this is an unfamiliar concept and not widely adopted.

This further strengthens the belief that the FSA does not understand how the industry works. Many brokers rely on repeat business and referrals so treating customers unfairly would fly in the face of their livelihood.

But this is an inward-looking perspective. If we look outwards at the consumer environment, society seems to want a more caring approach. Investors are increasingly considering ethical funds, fair trade brands are becoming more common and even the former chairman of Shell is advising us to buy lower emission cars. In this context, TCF becomes relevant and I believe consumers will regard it positively.

TCF has the potential to build confidence in the advice profession and in brokers who meet and transcend its requirements. It could even be an antidote to the damaging stories that continue unabated in newspapers and on TV.

But for TCF to boost consumer confidence, we must ensure the FSA does not find major failings when it comes to embedding the initiative within the industry.

The FSA is starting to shift its focus towards small, directly au-thorised firms. While these companies do not represent a greater consumer risk than large firms they don’t have the same re-sources, so the interpretation and implementation of TCF is bound to vary.

It has taken three years for the FSA to shift its focus to smaller firms and stern warnings have been issued about there being no excuses for failing to meet TCF deadlines.

Networks and large brokerages have the breadth of know-ledge and capacity to digest and interpret TCF, then work with their members to embed this.

Small DA firms do not have the same level of support and must be disciplined in dedicating enough time to implementing TCF. This is not going to be easy in a declining market and seeking external assistance may be the most effective solution for many.

Don’t jump to hasty conclusions

It was interesting to read the results of recent research by BM Solutions and the interpretation this was given. Surveys can be an effective way of capturing the views of a large audience but they can sometimes result in misleading conclusions.

In the BM Solutions survey, only 9% of brokers contacted listed maintaining income as a major concern. A hefty 36% identified criteria changes as their biggest challenge. BM Solutions concluded that firms may be finding other sources of income, so maintaining income levels is not an issue for them.

I’m not sure I’d have reached the same conclusion. Criteria changes increase workload for brokers and in the current climate will inevitably lead to more clients being unable to proceed so I can understand why 36% highlighted this as the biggest challenge.

But 9% indicating that maintaining income is a concern is not the same as saying most brokers surveyed will maintain their income this year. Many will have scaled down their projections or made other cutbacks so in effect they are already prepared for a fall in income.

I’m sure proactive brokers will seek other sources of income to sustain their earnings but at this stage, it seems unlikely that most can be certain this will have the desired outcome.

Seek out fresh income streams

Brokers’ views differ in terms of the outlook for this year but many think focussing on remortgages will protect them against the current turmoil.

It will be interesting to see how the remortgage market plays out in 2008. HSBC has launched a deal allowing its existing fixed rate customers to extend their current rates when their deals end. These customers will escape the worst effects of mortgage shock.

Retention will remain high on lenders’ agendas and many do not offer retention fees to brokers. Direct rates are likely to continue to become more attractive.

So if the conclusion reached by BM Solutions’ research (see box, left) is not on the mark, brokers will indeed have to find other sources of income.

Ensuring clients’ protection requirements are explored when arranging mortgages means earnings are maximised and advice is comprehensive. Brokers should also look for referrals to commercial and pension specialists.

Those who seek new business this year should continue to prosper.


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