‘Man is what he believes’. Anton Chekhov
The challenge in complying with principles-based regulation in general and ‘Treating Customers Fairly’ in particular, depends on one’s point of view.
Nurture
We all have principles. These are the codes by which we lead our lives. They are built on our values and beliefs developed by upbringing and life experiences. Our upbringing is largely determined by parental guidance and influenced by schooling and the culture in which we live. Religion plays a part too and some might say a lack of religion plays an equal part. When someone says: “That person has no principles,” what they mean is ‘that person is not displaying the same set of principles as mine’.
In the early years, we accept the voice of authority and get confused if there is no such voice. As we get older, we select values and beliefs that fit our personality and self-image. We determine what we do not want to be as much as what we do want to be. It would take something drastic to change our values and beliefs.
Carl Jung, one of the originators of modern psychology, observed that every judgement made by an individual is conditioned by his personality type and every point of view is necessarily relative.
Fairness is not a fact; it is an opinion. A dictionary definition of ‘fairly’ is ‘justly or honestly; impartially and free from bias’. ‘Honest’ means ‘honourable in principles, intentions, and actions’ and ‘honourable’ means ‘worthy of respect’.
Subjective
Fairness is not a catch-all behaviour. As fairness is subjective, the only true judge is the customer and each customer is different. Before any action is taken on behalf of the customer, his or her values and beliefs must be taken into account. While they might not have any experience of the subject requiring advice, he or she will have a view about what they want to achieve.
This is quite a shift in thinking for many advisers who make expert judgements about what is best advice.
Qualifications
Unfortunately, the regulatory regime is in conflict with its own principles-based ethos. Regulations and qualifications are still driven by product brokering. The adviser has to be an expert in the areas in which products have been developed. The Retail Distribution Review is considering a ‘professional’ status. However, there is no specific required qualification that fully demonstrates all-round financial advice for all needs, for all age groups and for all levels of understanding.
The Financial Services Skills Council is exploring the advice process as a qualification but early development falls well short of the behaviours required to demonstrate the ability to ascertain customers’ values and beliefs appropriately and completely. ‘Soft facts’ as they are described, only penetrate the first layer of understanding; they do not probe the core values.
The Institute of Financial Planning provides the best guide to financial planning as an entity and is recognised as an excellent professional qualification. However, it still is seen as a ‘nice to have’ rather than a ‘need to have’ in the profession.
Under principles-based regulation, this is the wrong way round. Advisers entering the profession should first learn how to understand clients before they learn about products. Financial products are not always the solution.
Financial advice, rather than product selling, has to start with a better understanding of the client. This goes further than discovering their wants and needs. It means probing into their values and beliefs, as it is these that determine their feelings towards the outcome of the advice and whether or not they have been treated fairly.
The shift in behaviour for the adviser is to act less like an expert and more like a counsellor.
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