The appropriate sales requirements. Financial products providers or investment companies must have an objective to work in the best interest of their customers and be responsible for upholding financial consumer protection while doing the sales.
Appropriate Sales Requirements
Financial services providers should be responsible, and accountable for the sales made to the customers, and should assess the related financial obligations, capabilities, and needs of their customers before agreeing to provide them with a product, advice, or service. The company’s staff should be properly trained and qualified, before doing any sales.
Where the potential for conflicts arises, financial services providers should endeavor to avoid such conflicts. Where such conflicts cannot be avoided, financial services providers should ensure that all the relevant and correct information is provided to the customer, and proper disclosure is made in the best interest of the customers.
Brokers
The brokers are required to provide the basic information package with the clients that may include audited financial statements, a summary of selected financial data, and management’s description of the company’s business and financial projections or plans.
A primary goal is the disclosure of important financial information about the securities and enabling investors, to make informed decisions about whether to invest in a particular security or not. Regulators require that the information to be provided must be accurate, and reliable, however, the broker may not be able to give a guarantee about the correctness of the information.
The publicly available information that is available from reliable sources, must be used to educate the investors about the investments. Making excessive claims about the securities, and shares, without any reasonable justification is strictly prohibited. The SEC Act requires the disclosure of important information by anyone seeking to acquire more than 5 percent of the company’s securities by direct purchase or tender offer.
Internal Control Mechanism
The company should have in place an internal control mechanism related to sales, to manage conflicts, or decline to provide the product, advice, or service, where the interest of the customers may be at risk.
The remuneration structure for the employees doing the sale of securities, or shares, should be designed to encourage responsible business conduct, fair treatment of consumers, and avoid conflicts of interest. The remuneration structure should be disclosed to the customers where appropriate, such as when potential conflicts of interest cannot be managed or avoided.
The objective to work in the best interest of the customer should be central to a firm’s purpose irrespective of the channel(s) used to contract financial products or services.
Germany
In Germany, one regulatory principle in financial markets supervision is that the management board of a supervised entity remains responsible for compliance with regulatory requirements, including in the event of outsourcing arrangements.
Authorized retail agents, too, are regarded as employees of the supervised entity in respect of liability towards customers and supervisors. Conduct of business in the client’s best interest is one of the very central regulatory requirements, the management board’s responsibility ensures that supervised entities put sufficient focus on this topic.
The Importance Of Compliance
Certain types of language, acts, and/or practices that can mislead or deceive consumers and cause potential harm are prohibited by certain regulations. If federal or state regulators discover that your brand messaging violates regulations, they may initiate an investigation, file a lawsuit, and penalize your company.
In terms of reputation, your marketing materials can make or break the first impression that consumers have of your brand. A bad first impression ruins your relationship with potential customers and tarnishes your reputation.
Final Thoughts
Reduction of conflicts of interest can, among other measures, be achieved by providing financial services without taking a commission from third parties. To increase transparency and provide information to the public Germany has established a publicly accessible online register of independent investment advising entities that follow a strictly fee-based business approach.
