You could be forgiven for thinking that product mis-selling in financial services has been consigned to the pages of history following the high-profile Payment Protection Insurance (PPI) mis-selling scandal that has dominated the news headlines in recent years. But you’d be wrong. New rules to prevent the mis-selling of a new generation of structured products have been published by the Financial Services Authority (FSA) and the Office of Fair Trading (OFT).
This new guidance is aimed at financial services firms that plan to design any future structured products. In particular, the FSA's guidance stresses that firms need to ensure that these products reflect their customers’ needs more closely, and ultimately have consumers' best interests at heart.
Having dealt with its own fair share of complaints in the past few years, the OFT has weighed in on this issue as well. Its guidance goes on to say that all firms should ensure that their consumers are clear about the nature, price and implications of any structured products being sold.
To most people, this advice probably sounds like common sense, and you may be left wondering whether we really need the FSA and OFT to tell financial services firms to put more time and thought into product design. However, the real problem with many structured products is that they are not ‘fit for purpose’ for the consumer they are being sold to. Indeed, this key failing is as much a problem of product design as anything else.
The design of fully compliant, customer-friendly financial services products requires an enormous amount of forethought, planning and strategic vision – which is precisely why many financial services firms outsource this process to companies that specialise in this area. Not only is outsourcing a much faster way to launch a new product (with some products ready to launch in less than 30 days), but it also makes it much easier to comply with the latest regulations in areas like Treating Customers Fairly (TCF), Conduct of Business (COB) rules, the Data Protection Act (DPA) and many more.
For firms operating in this sector, this has to be their number one goal. After all, the financial services sector has become more competitive than ever in recent years, with companies increasingly fighting to differentiate themselves in an over-crowded market. A key part of this battle will be the ability to design transparent, fairly priced financial products that appeal to the greatest number of potential investors. And structured products do have their place – if designed, marketed and sold correctly.
However, even though it’s essential to get the design of these products right from the start, that’s still only half the battle: in order to avoid any future mis-selling issues, financial services firms will also need to make sure that any subsequent marketing is done correctly and appropriately, so that consumers can understand exactly what they’re buying after a new product has been launched.
A common fear among firms in this sector is that they will need to build whole new systems and address large-scale administration and regulatory requirements in order to design, market and administer new financial products like these correctly, but that’s not the case. By working with a specialist outsourcer, financial institutions can actually delegate the vast majority of these responsibilities, and focus instead on creating easy-to-understand, fully compliant products that are in tune with their culture and brand, and which will satisfy both their customers and the regulators.
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