Applause for our financial services clients!
Why are we applauding our financial services clients?
The financial services that many organisations provide to their customers are complex. These services can be difficult to understand and even harder to explain. Some organisations have recognised this complexity, and have done all they can to ensure that their customers knew what they were buying. The regulations required them to offer a PDS or Prospectus, but they went over and above what was specifically asked for. They tested their documentation with customers. (This is called 'consumer testing'). Those of our clients who did this - we applaud you!
Unfortunately for their customers, some other organisations treated their obligations with token compliance. They defended this token compliance with arguments like:
- People don't read the documentation, so why should I bother explaining it? and
- Nobody has complained.
After the Banking Royal Commission we know that token compliance isn't good enough. The Government has now taken a further step to help, by passing the
Treasury Laws Amendment (Design and Distribution Obligations and Product Intervention Powers) Act 2019
What does this new law mean?
Certain financial services organisations now have two years to make sure that the products they design and/or distribute must be designed for a specific target market. The organisation has to take into account such things as:
- How complex the product/service is for the customers the organisation has designated as the target market for the product
- Whether it is suitable for their risk profile and/or investment needs
- Whether it suits their circumstances, and
- Whether the designated target market can understand the product features.
Some tips on how to do this
- Test your PDS (or Fact Sheet or whatever) with a small number of customers. This will soon tell you if the product is complex.
- Do not test with your own employees, even if they are customers.
- Do not test all of it - that is rarely possible. Test whether they understand the parts of the product that will have detrimental consequences if something goes wrong. This could be your definition of storm cover for example.
- Research your customer base to find out how your customers are using the product. Are they using it in ways you did not anticipate? Have new users adopted the product who dot fit the target market specification.
Tags: Disclosure, Consumer testing, Compliance, Design and distribution obligations