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ATEB: We’re not a ‘report and run’ compliance firm

ABR editor Rob Kingsbury talks to Steve Bailey, director of compliance firm ATEB Consulting, about the firm’s principles and operations, best practice for adviser firms that want to stay on the right side of the Regulator and whether the FCA is taking a tougher stance with advisers these days.

Rob Kingsbury: What’s the background to ATEB as a business? How long have you been operating? What are your credentials as a compliance business?

Steve Bailey: ATEB Consulting in its current form was established in 2004, although Huw Reynolds, my fellow director, and I had been working together in partnership trading as ATEB Consulting for five years before that. We both come out of life and pensions companies.

We have now worked under various regulatory bodies, including the PIA, GISC, MCCB, FSA and now the FCA, which has given us a good grounding in the way regulation works and what Regulators want to see in advisory firms.

In fact, probably where we have learnt most over the years has been sitting with firms when they have been going through regulatory visits. That has helped us shape the compliance aspects of the business.

In addition, we have Section 166 Approval, which means we are on the Skilled Persons list of firms to which the Regulator refers businesses with which it has concerns or it feels warrant further analysis.

RK: ATEB has two parts to the business, the compliance consultancy and suitability software vendor. What does each offer the advisory market?

SB: We have always been focussed on the compliance side of the business, which is ATEB Consulting. Our core compliance service is holistic and includes annual risk-based audits, risk assessed file checks, a compliance plan and checklists, complaint handling, GABRIEL support, mergers and acquisitions support and regulatory training.

Several years ago we recognised that the area of suitability reports was one where there were numerous concerns, ranging from poorly constructed reports through to a lack of consistency, even among reports generated by the same adviser firm. So seven years ago we developed software that firms could use to give them a smarter, more cost effective and compliant approach to producing reports, which became ATEB Suitability.

RK: In your experience, why do firms tend to call in a compliance consultancy? What are the main areas your new clients want help with?

SB: Primarily they call us in because they want peace of mind and to know things are taken care of. We are not a ‘report and run’ compliance service. We see little point in providing a list of failures and then walking away. More often than not there will be a deeper issue, either with an individual in the firm or the processes and procedures of the firm itself.

We offer a holistic approach to compliance. We’ll undertake a detailed compliance audit, aimed at not just showing the symptom but to get to the root cause and help the firm deal with the problem. Dealing with the symptom won’t make a firm compliant. We look to understand how the firm operates and what is creating the problem.

If you want an analogy, we don’t just carry out an MOT and tell you your car has failed. We’ll get under the bonnet, find out what’s creating the problem and fine tune the engine to help prevent the failure occurring again.

We’ll also do bespoke work for firms. The main areas firms want help with are designing their processes and procedures, business plans, etc. As a section 166 Skilled Persons we will also have clients that are distressed, those that have received an interest from the Regulator, or know that they will be, who want an insight into where they need to improve to help turn things around.

Where the compliance firm is on the payroll (i.e. they charge a retainer) the temptation is to reassure the firm that they are doing well when actually they aren’t.

It is very important that compliance standards remain high and ATEB robustly challenges firms on their processes and their methodologies. Robust challenge is a key part of what we do. We do it through the audit, which will identify gaps and tasks which in turn will be transferred on to a compliance calendar with up to 12 months worth of activity. The compliance calendar will show what needs to be done by the firm and what needs to done by ATEB and how much contact is required. This means we are working in a structured, proactive manner. Compliance is an ongoing need within any advisory firm and most firms welcome a regular hands-on approach where we are working with them to improve their operations. As I mentioned earlier, we are not ‘report and run’.

RK: What’s the one thing that if firms nail it within their business will benefit them in terms of being compliant and remaining compliant?

SB: There is absolutely one thing, above all else, firms can do to ensure they are compliant – spend time at outset designing, agreeing and implementing a tailored and compliant sales process.

We refer to the sales (or investment) process as the process by which the adviser takes the client on the journey from the initial meeting to finding an end solution, whether that involves a product or not. The sales process includes everything from where you obtain your leads, the questions you ask to demonstrate know your customer, the detail and depth of your research to how you demonstrate initial and ongoing suitability.

Don’t simply rely on your generic ‘one size fits all’ compliance manual supplied by your compliance support company. Most of those off-the shelf-manuals are little more than reference material that you could Google if you needed to. What really matters is not a reference manual but what you do in your firm from day-to-day and whether you are doing it in the right way.

We would argue that the many of the firms in the market don’t have the sales process right and many others that do have a process simply don’t apply it in a consistent and compliant manner. For example, is what the firm has recorded in its terms of business and fee structures reflected in the firm’s day-to-day activities? We often see variations with no explanation, which could certainly be interpreted as treating customers unfairly.

We’ll sit down with a firm and talk to them about what they are looking to achieve, what they do and how they do it and tailor it to their firm. It needs proper stress testing and someone to be pragmatic but tough.

“You can almost guarantee that it’s the sales process which will form a key part of the firm’s conversation with the Regulator. Get this part right and it will help keep you on the right side of the regulation.

RK: What’s usually the tipping point at which firms tend to call on your services?

SB: There are numerous trigger points. Often it is down to resource, where a key person has retired or moved on and they need some guidance. Also where a member of staff has been asked to leave and they want someone to come in and check over things. Also, where new FCA guidance or new legislation comes in or where the Regulator has expressed an interest in the firm and they need to call someone in to help or undertake a review.

Firms are aware that they should call in a compliance consultant but often will wait until they are pushed. It’s much better to be proactive and bring someone in and know your processes are working in the right way; it makes for better business efficiencies if nothing else. In our view, compliance isn’t about remote support with an annual visit, it’s about a properly thought through strategy and methodology that is going to properly benefit the company.

RK: ATEB is Section 166 FCA approved. What did it take to get that approval from the regulator?

SB: It was a long, detailed and thorough due diligence process. It consisted of several stages and we submitted a huge amount of information as we progressed through it, including the type of work we do, the high standards we apply and our methods. We were appointed in April 2012 and since approval we have completed many assignments working closely with the Regulator.

RK: When you go into a firm for the first time what are you looking for? Are there telltale give away signs that immediately ring alarm bells? 

SB: Often the signs are manifested in the office environment. If the office looks chaotic then you can almost guarantee the processes will be. An overview of the sales process, business model and monitoring procedures usually give us a quick feel for the quality of compliance.

There are certain back-office software systems where we know the factfinds are not going to have the right types of questions in them and so we know immediately that justification of advice is likely to be strained. Similarly, with certain risk profiling systems we know there are likely to be conflicting answers, which will cause problems and they are not going to be recording sufficient soft facts in the factfind and around attitude to risk. Also, where firms are sending out generic suitability letters, which are often long winded, confusing and don’t get to the crux of the client’s needs.

RK: Can you work with firms that may already have an outsourced compliance service but maybe want further checks and reassurance or some deeper digging or remedial work undertaken?

SB: Most of the larger firms that we deal with have an in-house compliance person or people. They use us to challenge the in-house system. We also deal with firms that use other compliance firms because they view two firms as a form of safety net.

There is no situation where we just carry out isolated file checks. We are engaged to stress test the system and controls so the directors of the company can be sure things are as robust as possible. Conducting ten file checks and producing ten fails is not going to solve the problem. The value to firm is looking for the root cause not just highlighting the symptoms by ‘ticking a compliance box’.

RK: Are you seeing evidence that the FCA is taking a tougher stance with firms?

SB: My view is that they are. In the past couple of months I have seen evidence that the FCA has been quite relentless with firms, looking at things at a granular level. I have also experienced situations where a formal S166 has been preferred over a less formal remedial business review. Equally, I’ve seen evidence of the FCA being open minded and pragmatic whilst engaging with firms.

RK: Why do firms tend to fail to meet the FCA’s standards and criteria?

SB: Where the FCA isn’t knocking on a firm’s door on a regular basis pointing out deficiencies, the quality of its processes can drift. I believe that most adviser firms want to do the best by their clients but unless they have a robust process in place, which is constantly being challenged, then inevitably at some point they will miss things or what they actually do on a day-to-day basis becomes out of kilter with that process, which, if not picked up on fairly quickly, can build into a bigger problem.

RK: The FCA appears to be taking greater strides to inform and provide guidance for advisory firms through roadshows, attending conference and workshops. Are you seeing that effort affect adviser businesses?

SB: I think it is. We’ve received feedback from our clients when they have been to see the Regulator present saying they understand where the Regulator is coming from. Getting out and talking to people in an educational way can only be a good thing to my mind.

But it’s important that firms aren’t lulled into a false sense of security because an FCA presenter makes a general comment to a group at a roadshow, firms still need to maintain that individual hands-on challenge as part of their internal processes.

Visit the ATEB Consulting website

Visit the ATEB Suitability website

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