Advisory firms without business plans could be deemed “high risk” by the FCA and investigated, The Consulting Consortium has warned.
Ian Stott, client services director of The Consulting Consortium, said most advisory firms still think the FCA is looking at file checking when they examine their businesses.
However, Mr Stott warned the FCA is increasingly asking firms to show and talk through their business plans – and if they don’t produce the document they face constant regulatory scrutiny.
He said: “The Gabriel reporting has been extended to provide a lot more granular detail in terms of what firms are doing to be prepared to meet the challenges of FCA regulation.
“The FCA’s desk-based research will inform the supervisory teams where they have to prioritise their visits and identify firms that have the greatest possibility of putting consumers at risk.
“If you think about what drives culture, it is always the business plan which details what is the business model, who the business is serving, is it cross selling, etc.”
According to Mr Stott, the regulator is requesting this information through conversations and extra questions they are asking on top of the Gabriel reporting.
He added that there is a general lack of awareness about what the FCA is looking for in terms of its understanding of a firm and that firm’s activities.
“If you go back 12 months it was all about meeting Retail Distribution Review requirements.
“Review your client base, segment it, develop a proposition that serves that critical mass and convert everybody from commission-orientated sales strategies into adviser charging and ongoing service.
“What should have driven that activity was a business plan. Intelligent businesses should have had to go out and articulate what rewards the firm will offer for achieving those targets.
“We have had a few conversations with the FCA supervisory teams around what are their expectations. Having spoken to some client firms who have been visited already they were astonished by the level of detail that was being requested.
“It has all been a bit left-field for those that have not been suitably prepared.
“They want to know how you are going to attract new clients, what is your target market, what are the demographics of that target market, etc.”
Mr Stott said he expected firms that fail to deliver up a detailed business plan will then find themselves deemed “high risk” by the regulator and find the FCA’s supervisory team wanting to “deep dive” into accounts, client acquisition strategies, their proposition design, etc.
He said: “These business plans need to be very detailed. I think they need to culturally demonstrate that the firm is doing the right thing and not just ticking boxes.”
When asked whether this was the approach being taken by FCA staff, a spokesman for the regulator pointed to the FSA’s ‘Journey to the FCA’ document.
The document stated: “Firms are categorised according to their potential impact on our objectives.
“Some firms in some sectors may experience a highly intensive level of contact with supervisors over months or even years. Others may only be contacted by one of our supervisors once every four years.
“The point is, we will focus our attention on firms and sectors of the industry that could cause, or are causing, consumers harm or threaten market integrity.
The document clarified assessments would be made that looked at business models.
It stated: “The assessments will help us come to a view about the extent to which the firm embeds fair treatment of customers and integrity in the way it is run.
“This, at the most intensive end of assessment, covers the product lifespan from design through to sales and after-sales handling.
“The assessment of governance and culture will be crucial, as these are key factors that drive whether a firm treats its customers fairly and can achieve the consumer outcomes set out through the TCF initiative.”
