What Is Fair?
All citizens and residents in Singapore must have celebrated when the Straits Times carried the news that MAS would be introducing the FAIR DEALING GUIDELINES by the end of March 2009.
The essence of the Fair Dealing Guidelines is that the Board and Senior Management of Financial Institutions should bear primary responsibility for embedding a culture of dealing with their customers fairly. This means that there should be five fair dealing outcomes:
- Customers have confidence that they deal with FIs where fair dealing is central to the corporate culture
- FIs offer products and services that are suitable for the customer segments they target
- FIs appoint competent Representatives who provide customers with advice that meet their financial objectives and suit their personal circumstance
- Customers receive clear, relevant and timely information to make informed financial decisions and
- FIs handle customer complaints promptly and in a consistent manner
The key words are “fair”, “suitable”, “competent”, “informed”, “prompt” and “consistent”.
We have to see whether these words are going to be defined further and more specific examples given.
It is also interesting to see how the Financial Institutions are going to implement these “Guidelines” which is another word which lends itself to wide differences in interpretations. For most people, guidelines are unfortunately just guidelines and they carry on with what they have been doing. Guidelines obviously are founded on moral and ethical principles of what constitutes fairness to customers. But what is fair?
The idiom “fair and square” points to the idea of equality and equity. “Tit for tat” and “an eye for an eye” point to justice.
The six Americans who were charged $491 for a meal by Tanglin Best BBQ Seafood on 17th March 2009 at Newton Hawker Centre complained of being “overcharged”. At the centre of the complaint was the bill for the prawns which came to $239 – about $30 a piece.
The National Environment Agency found the complaint justifiable and slapped a three-month shutdown for the stall, and a layoff of the worker for one year.
But what if the stall worker had mentioned the price and the tourists had agreed to it?
In this instance, both issues were present – the price charged was high and the price was not made known. But what if the Best BBQ Seafood prawns is really the best? It is obvious that besides the size (quantitative) factor, there are also qualitative factors like service, quality of the food and taste.
In the case of financial services and products like the Lehman Brothers and Minibonds saga, what must be missing before something is judged mis e.g. misspelling and misrepresentation?
Is single product pushing misspelling because the Representative does not inform the customer of other available products in the market? I think so. But what if the company’s Representative is a tied agent and does not know or does not bother to know about the other products available? I think the practice of tying an agent or Representative down to only one firm is unfair to the Representative in the first place, and more so to the customers.
Wouldn’t outlawing tied agencies go to the root of solving the problem of wrong products or uncompetitive products? In the UK, every customer has to be made aware that he/she can consult an Independent Financial Adviser before committing to a purchase. Shouldn’t this be done here also if the tied agency or single company representation is not prohibited?
In some States in the USA, besides the option to become independent brokers, agents are also allowed to be General Agents to represent many insurance companies.
How much information should a customer be given and understand correctly for him/her to make an “informed” decision?
The consultation paper on proposals to strengthen the regulation of the sale and marketing of Unit trusts, life policies, debentures and structured deposits mentions a few important measures:
- Product issuers to prepare a short, user-friendly Product Highlights sheet in addition to the prospectus, benefit illustrations etc.
- Requirement of advice for “complex investment products” (those with derivatives) and health warnings (to understand the product before buying)
- Representatives obtaining “enhanced quality of information from customers” to achieve the right analysis and give suitable recommendations
All communications have to be understood by the customers in a language known to him/her in particular. The customers have to understand the risky nature of the product and how they will meet their financial objectives.
What is a “suitable” product for the customer segments?
The Financial Institution is required to do due diligence in coming up with suitable products.
Who is to judge whether the product is suitable and on what criteria?
The bridge between the customer and the Financial Institution is the Representative. If the Representative has access to many products, he/she can do the matching of customer needs and products.
If the Representative does not have choices, he will be forced to adopt a one size fits all approach and product pushing.
The key to ensuring that products are suitable and competitive is to have an open architecture where all product providers make their products available to all Distributors and Representatives who would then be depended upon under Professional liability rules to meet customers’ needs. When this is achieved, the only issue left would then be to ensure that Representatives are competent. If they are all licensed and/or the same strict regulations for compliance and CPD are enforced, then it would be easier to raise standards of their competence.
The centre of attraction in the Fair Dealing Guidelines is Senior Management which is correct. It is Senior Management who set the standards of Representatives’ competence, suitability of products and professional sales practice and customer service.
It will be interesting to see what action really can be taken against any Board member or Senior Manager who is found wanting.
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