Four ways accountants can prevent poor financial products
Chartered accountants and finance professionals have an important role in delivering better conduct in the financial services sector and in helping customers get a fair deal. Here ICAEW's Financial Services Faculty outlines practical actions you can take.
- Identify highly profitable products
High profits in products may presage future conduct issues (for example, payment protection insurance).
Look at the profitability of each product as part of its product governance sign-off, and evaluate it again after implementation. This can help to identify future problem products, and products that risk being mis-sold (such as, interest rate swaps to small businesses).
- Lead the debate on whether the economics of a product are being shared fairly between the customer and the bank.
For example, customers often mistakenly assume that all products have the same profit profile for the bank. This is not always true and could be more clearly communicated to customers. This kind of analysis will help to ensure sustainable profits.
- Help develop customer value metrics to understand the benefit of the product or service to them.
This can help identify high risk products and assessment of whether the customer derives a fair value from the product.
- Make sure analysis considers the customers’ perspective and outcomes in a range of circumstances taking into account potential stresses.
For example, a mortgage key-features document shows the cost of the mortgage under different rates. As part of the product approval process, look at customer fair value in a range of scenarios, such as when interest rates change or investment performance is very different to the past.
A customer’s understanding of the stress and the potential impact on the product is another key variable which must be understood.