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Customers are provided with clear information and are kept appropriately informed before, during and after the point of sale.

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Principle 3: Disclosures

 

What that means:

 

Most of us know about the small print and the ‘devil being in the detail’. This principle means that companies cannot hide important information in the small print anymore.

 

When a company tries selling you a financial product or service, you must be made aware of its key points.

 

These include:

 

• the total cost of borrowing
• any penalty charges
• the term of the agreement
• whether or not your home is being used as security

 

In fact, anything which is going to cost you more money now or down the line must be brought to your attention before you sign on the dotted line.

The right information presented in the right way at the right time helps customers make better decisions. This is the fundamental of outcome 3.

Information must be communicated clearly, fair, balanced and not misleading. It must be accurate and sufficient and be presented in such a way that is likely to be understood by the average member of the group at whom it is directed. Information meant for the customer should be clearly distinguished from information which is meant for the distributor, and it should be clear what is pre-sale, point of sale and after sale information.

Effective training and clear information to all customer-facing staff, will ensure they understand, at an appropriate level, each product and service offered to customers, its features, and its risks. It is essential that the purpose of the product and its key benefits should be communicated in language which is understood, and that the material is checked and approved before being shared with customers.

Where benefits are discussed, there must be a fair and prominent indication of any relevant risks. Important information such as statements and warnings must not be disguised, diminished, or obscured. Administrative staff as well as advisors who work with product literature or products should understand these to be able to properly perform their function and understand the products with which they work.

The marketing material may not make misleading promises, and this should be tested. An example, a promise is made to pay the claim within 48 hours, even although there are no structures to ensure such a turnaround time. Customers should not feel misled, as promotional material generally focuses only on good reasons to buy products but fails to inform about the key risks of the product or the extent of exclusions or limitations.

To ensure we comply, it is important to ensure customers have all the information they require to make an informed decision in relation to the financial service under consideration. Clear communication is a key component of FSP’s’ approach to TCF.

 

The references to product information under Outcome 3 do not only refer to material that contains technical product descriptions but includes all information that is provided or made available to a customer to make a decision regarding a product or in understanding the features or operation of a product. Therefore, product information includes, but is not limited to the following:

 

It is also important to note that product information does not only refer to information produced by the product supplier concerned but also any information supplied by the financial services provider, sales. department and any third party.

It is the responsibility of a financial services provider to ensure that product and service information regarding their own product or any other party’s product is correct and stays current. The financial services provider must not only review the clarity, appropriateness and fairness of product information provided to customers on a regular basis themselves but must also test the product information for its clarity with the target customer group before issuing it. Senior management should approve all product information whether produced by the financial services provider or not. It is best advised that agreements with third party distributors stipulates that only approved product material should be distributed.

 

These stipulations refer to both standard product information and any once-off non-standard product information.

 

The financial services provider must also ensure that information is made available to customers by staff, representatives or third parties at an appropriate time to enable the customer to make an informed decision. The financial services provider must monitor complaints and suggestions received from customers, staff and third parties to identify the need for improvement in product information and should act on such feedback in a prominent manner. The financial services provider must be able to provide concrete examples of the improvement in processes in the extent to which the financial services provider is delivering TCF outcome 3.

 

This process is applicable to-

 

• Information distributed by FSP for themselves
• Information distributed by FSP on behalf of someone
• Information distributed by someone else on behalf of FSP

 

FSP’s must communicate with customers on an on-going basis post-sale to ensure that customers are kept aware of product performance, their opportunities to act at certain points in the product lifecycle and changes in the terms and conditions.

 

FSP’s must adhere to the following stipulations in order to meet the requirements under TCF outcome 3 with regard to post-sale communication:

 

• The financial services provider must provide existing customers with key information on their products on a regular, ongoing basis after contracting, through appropriate channels;
• The financial services provider must ensure that customers are informed of any recent or pending changes to products, contractual events or any actions required from them, in sufficient time to enable them to reasonably respond to or act on the information

 

To meet these requirements, FSP’s should ensure that they have up-to- date contact details of customers, and that customers have current and accessible contact points if they need product or service information or need to get in touch with the financial services provider for any reason.

 

Therefore, FSP’s must inform customers of the requirement to update their personal and contact details if any of the details change during the business relationship with the customer. The financial services provider must also ensure that the contact details of the financial services provider, compliance department and any relevant third parties have been conveyed to customers.

 

Furthermore, FSP’s must keep accurate, retrievable, and secure records of all product information provided to customers and any other material interaction with customers.

 

A culture should be created where the representatives must immediately bring it to the attention of senior management if they feel that any information provided is misleading or inaccurate or does not provide the customer with adequate information to make an informed decision. Any complaints or feedback from customers regarding this, should also be brought immediately to the attention of senior management.

 

Management should insist that and monitor whether representatives use plain language, avoid jargon, or explain jargon terms where they are unavoidable. Language used should take into consideration the literacy level of the intended market and their financial knowledge levels.

 

The high degree of information irregularity between financial institutions and their customers is a significant source of conduct risk. For a customer to make an informed decision, it is necessary that they be provided with certain essential information, and that the information is not misleading, deceptive, or confusing. Many financial products are by their nature complex and their performance uncertain, and even with all available information, comparison across products may be difficult. It is therefore imperative that key information is provided in such a way that consumers can easily locate, compare, and understand the information needed to make an informed decision. One of the explicit outcomes of TCF is that “Customers are provided with clear information and kept appropriately informed before, during and after point of sale.” (outcome 3).

 

The sections below summarise the disclosures that a representative must make regarding the product or service, financial services provider, and product supplier.

 

A representative must at the first meeting or call provides the customer with the following information regarding the financial services provider:

• The full business and trade names, registration number and contact details of the financial services provider;
• The names and contact details of the compliance officer or compliance department of the financial services provider;
• Whether the representative is rendering services under supervision;
• Details of the financial services and financial products the representative is authorised to provide.

 

The representative must provide the customer with the following information regarding the product and the product supplier:

• The product name
• The name and contact details of the product supplier
• Name and contact details of the compliance department of the product supplier
• Whether there are contracts with other product suppliers
• Existence of any conditions or restrictions imposed by the supplier on types of products the financial services provider may provide
• Whether the financial services provider holds more than 10% of the relevant product supplier’s shares
• Whether the financial services provider received more than 30% of total remuneration, including commission, from the product supplier during the last 12 months
• The key features and benefits of the product
• The terms, conditions and exclusions of the product including for example what will happen if the customer does not pay the premium, increases, the waiting period, excesses, restrictions, or circumstances in which benefits will not be provided
• Breakdown of the costs

 

The representative must make sure the customer understands the terms and conditions of the product. This includes the obligations assumed by the customer as well as the obligations the product supplier must adhere to.

 

The representative must also inform the customer of the following:

• The rand amount of commission/fees the financial service provider and/or representative will earn for selling the product. For example, the representative must inform the customer that the 5%commission received will translate into R100
• Any other incentive (prices, gifts, or bonuses) that the financial services provider or representative might receive
• How often he/she will receive a fee, commission, or incentive, for example once a year or every month

 

 

Representatives are very reluctant to disclose their commission structure and the fact that they are working under supervision. Financial service providers should have reward practices in place to ensure that adequate disclosures are made.

 

Evidence of Outcome 3 being implemented.

Having a clear communication process or strategy with an approval process, making sure that language is easy to understand, and keeping full records of this process and all documentation.