6 Tips to Avoid Financial Mis-selling

Posted by

Lynne Callister

on 30 Nov 2017


The UK financial services industry has been hit with billions in fines due to mis-selling products. We have some tips to avoid another scandal.

6 Tips to Avoid Financial Mis-selling

According to figures released by the Financial Conduct Authority (FCA), more than £33bn has already been paid out to those who mis-sold PPI.

An estimated 64 million PPI policies were mis-sold in the UK from 1990 to 2010, and poor client conduct has cost banks a staggering £264bn over four years between 2012 and 2016.

How to avoid financial mis-selling

  1. Provide information and training
  2. Better product governance
  3. Appoint Treating Customers Fairly (TCF) champions
  4. Revisit all disclosures
  5. Work with HR to check targets
  6. Check the impact of client categorisation rules

Free MiFID II Training Presentation

Successive scandals such as LIBOR and PPI have damaged client trust and confidence in the financial services sector. Following the financial crisis, regulators have sought to restore investor confidence with a tougher regime, a renewed focus on Treating Customers Fairly and regulations, including MiFID II.

Under these rules, firms must ensure that any financial instruments recommended to clients are suitable and appropriate for their needs. To do this, you must conduct suitability assessments for all recommendations, including buying and selling or holding investments.

Is this enough? What more can you do to show a genuine commitment to clients if it isn't?

1. Provide information and training

An important question is whether advisers (product distributors) currently have the right information, knowledge and training about your products, services and financial instruments?

They should be clear about who the target market is and who your end clients are. This is vital and one of the best ways of preventing mis-selling. Ensure that there are clear processes and rules if advisers want to recommend products or services to those they are not designed for. Advisers should know what to do in this case.

2. Better product governance

Is there a product approval process already in place? Think about how you can improve communication between product manufacturers and distributors to prevent mis-selling.

How can you encourage dialogue between them post-sale to improve governance? Ensure there are measures in place when distributing other firms' products. It is important to consider how you can ensure that you only recommend products, services and financial instruments endorsed by management.

3. Appoint Treating Customers Fairly (TCF) champions

They will be dedicated to championing customer needs, assessing the impact of any change or new products on clients, looking at the latest developments from the client's perspective, etc. This will be pivotal in maintaining a customer focus.

4. Revisit all disclosures

Are your disclosures compliant with the rules? Do you always disclose conflicts of interests, costs, charges, commissions, connections and relationships upfront? Ensure you make appropriate disclosures on independence or any restrictions on the type and nature of products, services or instruments.

Do you inform customers about the range of financial instruments you recommend and make any links to issuers and providers clear? It's important to explain the nature, purpose and frequency of suitability assessments.

Let customers know that these tests aim to ensure you act in their best interests. Disclosures are crucial and help customers make comparisons and informed decisions. Don't underestimate them.

5. Work with HR to check targets

Check that there are no incentives, performance targets or other conflicts that may cause you to recommend certain products when others are more suitable. It is important to ensure that there are no remuneration or performance targets that encourage you to act in ways that are not in the customers' best interest. 

6. Check the impact of client categorisation

It's important to ask the question about client categorisation's impact. Are your systems and processes fit for purpose? Ensure there is a clear process for obtaining and recording consent where clients opt to be categorised differently (e.g. retail instead of professional).

Your client onboarding software should be capable of recording suitability assessments and reports, issuing annual reminders, and even categorising clients.

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