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FCA’s Percival on professionalism in adviser firms

Rob Kingsbury reports on the keynote speech given at the Professional Paraplanner Technical Insight Seminar, by Rory Percival, technical specialist at the FCA, talking to professionalism in financial advice firms. He spoke in particular on four key areas that could help firms improve their culture and their proposition to clients. 

Driving professionalism was a “very important area for the FCA and we expect to see firms working towards it on a day-to-day basis.” Percival made clear.

To this end, the FCA was supporting and encouraging professionalism within the sector, he said. “It’s not Handbook based, it’s more about getting firms to be better at what they do and to work better with clients and, through that, get at the right outcomes, which is what the Handbook drives towards.”

The regulator had defined four key areas in respect of where professionalism was best evidenced and could be nurtured by firms, he said, which were:

1. Operational effectiveness.

This is not just about how “slick or quick” a firms processes are, he stressed. “The issue here is, if you have individual who is making decisions in isolation, or who in a management group like an investment committee or board is overly dominant, then their personal biases – and we’ve all got them – are more likely to play out.”

In contrast, a firm that has adopted a more structured approach to its decision-making process, “particularly one with a challenge step built in”, is more likely to be effectively managing those biases and so reach better and more impartial decisions that work for its clients.

On the operational side, firms need to be clear who does what and therefore, what are their responsibilities. Likewise, having processes and procedures including routine and robust record keeping. He cited the example of a firm where an adviser is not keeping accurate or sufficient records, requiring requests for further information in order to complete suitability reports and/or where compliance has to step in when file reviews showed records were inadequate, and where the adviser was not responding to supervisory training, as a firm that was “not operating effectively or as a professional firm”.

“The adviser probably doesn’t realise the impact that his actions are having on other people in the firm or the effectiveness and the professionalism of the firm but if a firm has that kind of thing going on it has to sort it out,” he said.

Outsourcing is another operational area in which firms need to be clear who is dealing with what and, therefore, who is taking responsibility, he added. “A firm that outsources is outsourcing the function not the responsibility,” he stressed. “Therefore, the firm needs to know that the individual or the company to which they are outsourcing, is competent to do that function.”

2. Challenge.

Percival emphasised challenge as an important means to prevent biases creeping into a firm’s decision-making process and its way of working. Firms need to think about how they build in and nurture a culture of challenge within the business. Encouraging staff feedback, with maybe an appointed representative to feedback the views of staff to directors and other decision-makers was one way to help the flow of information. Also, bringing in or otherwise seeking views from a third party, such as from firms to which it outsources, who may have come across different, more efficient or simply better ways of doing things, as well as management consultancies, can help a firm challenge itself.

Percival acknowledged that smaller firms can find it more difficult to set up that kind of formal structure “but we do know of firms that have set up peer group meetings with their counterparts in other firms to keep up-to-date on issues and discuss areas like best practice.” He cited his own example of being a compliance officer in a small adviser firm when he would meet with other compliance officers in the area to talk industry issues and best practice, as a means of gaining insight and different ways of tackling issues.

FCA communications can also be useful in this respect he said, for example when the regulator published examples of good and poor practice. Looking at Final Notices can also help “as they will always give the background to what happened, which can point to how firms should and shouldn’t behave”.

“A culture of challenge isn’t confrontational it is constructive, it’s thinking ‘how can we do this in a better way’?”

3. Culture.

A firm’s culture, Percival said, is having a unified purpose and set of values to which everyone in the firm is working. “People say consumers don’t buy what you do they buy who you are and what you believe in. It’s up to the firm what the culture is but it should be clear across the firm because it impacts on the work that you do and how you deal with your clients on a day-to-day basis.”

4. Consumer centric.

“Every firm says or thinks that they are consumer-centric,” Percival said, “but when you’re outside looking in you can get a different impression.”

As an example, he cited a firm that introduced a new service proposition that the firm said was designed to meet the needs of its clients. “But when we looked at what the drivers were, how they had set it up and why they had done it in the way they had, it actually was all being done for the commercial benefit of the firm.”

One of the best ways for a firm to be consumer-centric he suggested, was to speak to clients and ask them what they want.

Client surveys were one way to do this. If carefully constructed they could be used to subtly test out whether the firm had been acting appropriately in accordance with its processes.

A key area in respect of client-centric behaviour is ongoing service and Percival said a survey conducted by the FCA into client experiences around ongoing services from advisory firms, had resulted in findings that in general were “very positive”, with a headline figure of 97% of clients being quite or very satisfied with the service they received. “That is a good reflection on the market,” Percival said.

Concluding, Percival said all firms had to guard against complacency, “as often people become settled into a structure and into their comfort zone if the proposition is working. Without that culture of constant challenge and review of what you do things can slip over time, and often people don’t see it happening.

“I would suggest that there are always improvements that can be made and that is part of the challenge process.”

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