The Financial Services Commission of Ontario recently launched a consultation paper on consumer fairness. Its principle point.
“Treating consumers fairly means putting the interests of consumers first. It means taking the time to understand their needs and ensure they understand their rights and responsibilities, so they can make the most informed financial decisions possible.”
That is not an unreasonable standard, and many would argue it does not go far enough. Most of the many, have not addressed the problems that arise form even this standard.
Put the client’s interests first. That one is easy to talk about, but harder to implement. It assumes facts not in evidence. In particular it assumes the client knows their best interests and can communicate them. What is in the best interest of Person A, may be quite wrong for their twin, Person B. It is not so uncommon for a client to articulate an interest that is poorly founded. Like invest retirement funds in bitcoins or precious metals.
Should the advisor refuse to deal with the client? Probably safer if they refused.
Ensure they understand their rights and responsibilities is relatively easy too. Again though, the range of client knowledge and experience is vast. How well do they need to know? How much of the future should they anticipate?
Rights are a well understood today. Responsibilities are not a popular concept amongst many of the citizens. Rights and blaming is the prevailing approach. Certainly blaming is a common thread for regulators.
So they can make the most informed financial decisions possible. A noble goal and one never reached. Even by the most dedicated advisors. “Most informed” means what? The decision a well informed and unemotional person would make or the “most informed” decision the person at the table can make given their inability to assimilate new information and their limited knowledge of reality in the financial realm.
Does well informed mean fully informed? Even if that were possible, fully informed today will be incomplete within a year. Information has a half-life. In financial situations, how long would it be before half the decisions, based on new facts and observations, were proven to be incomplete, even wrong. Certainly less than five years. You cannot know the future. You would be lucky to know the recent past in any detail.
Advisors cannot sell product independently from their client’s particular facts. They must make a serious effort to discover the underlying situation and fit their product choice to that. It will not be safe to assume the product did no harm. It will be necessary to establish that it fitted and did some good.
Clients must be educated. Anything they know, they learned in a haphazard way. You cannot rely on their ability to assess the reasons, risks or opportunities within any financial decision. Things that appear self-evident must be addressed. Most are self-evident to people with some knowledge and experience, but the client doesn’t see them at all.
Advisors will not forever be able to rely on a ten question Know Your Client Form and some notes on the back of an envelope.
Its about meaning. Investing in a client’s understanding of what you do, how it fits, how you connect to others who fill other spaces, and why it helps them, will be time and money well spent.
Meaning always helps.
I arrange life insurance for people who understand the value of a life insured estate.
In previous careers, I have been a partner in a large international public accounting firm, CEO of a software start-up, a partner in an energy management system importer, and briefly in the restaurant business.
Please be in touch if I can help you. firstname.lastname@example.org 705-927-4770