The pressure on small and medium-sized wealth management firms to invest in compliance is driven firstly by the need to meet regulatory requirements – and thus avoid costly fines – and, secondly, by the need to enhance brand reputation. From the wealth manager’s perspective, the key to this is to take control – and just as importantly be seen to take control – of client and transaction prospecting and wealth manager competence and conduct development.
Policy
Sound client-related policy and practice transacted by highly professional, competent and knowledgeable relationship managers will pay dividends and could further justify the costs of compliance by gaining competitive advantage. Simply ticking the boxes and allowing staff to get by with the minimum required standards will not.
Merely adhering to the rules is becoming more costly and this does not even take into account the opportunity cost of the time when client-facing staff are diverted away from ‘core’ business activities.
There is also the difficulty to quantify costs of embedding a compliance culture within an organisation and be seen to be doing so both by clients and regulators. Whichever way you look at the situation, the compliance cost burden is going firmly upward.
Many firms seem to be congratulating themselves that all of their staff have reached threshold competence qualification QCF level four or higher and are now logging the requisite CPD hours with the relevant accredited bodies. In due course, the statements of professional standing will be issued and many firms will be content with that.
That accreditation, however, is only the starting point. Qualifications, training, continuing professional development, policy and process are all inputs – and obviously very necessary ones. But everything the FCA has communicated since its inception points to a declared focus on outputs – on conduct and compliant market, product, advice and client behaviours.
The problem is that the former approach is much easier than the latter. Investing the time, effort and money to ensure that all the boxes are ticked is far more straightforward than quantifying the results and ensuring they are manifested in the outputs of the firm. By ‘outputs’ here, I refer to the product and service deliveries, the quality of the adviser outputs, their market and client conduct and, most difficult of all, the ethical culture of the business itself. These are not always easy criteria to quantify.
Most firms have only just got to grips with delivering the inputs and now they are being told that will not be enough. So what must they do? Here is a simple checklist.
■ First and foremost, every firm must define its own set of standards and benchmarks in terms of competence, performance and conduct.
■ They must be clear on what good looks like. Set the standards and then drill those standards down through the business – through policy and process, training and development and the general development of cultural attitudes.
■ These standards should be embedded through effective performance management, with clear expectations, objectives and competencies for every adviser – in every area of their work.
■ Assessment is the critical next step. The often weary annual appraisal is just not enough. Ongoing assessment of key indicators in all areas of delivery is what is required. This means daily, weekly or monthly assessments against key performance indicators, with clear benchmarks. Where shortfalls occur – whether they are concerned with falling behind with CPD or not completing transaction suitability forms – these must be identified immediately and dealt with.
There are a number of ways to benchmark these deliveries and spot shortfalls. These include:
■ Failure to meet numeric targets or benchmarks, for example, financial targets, exceptions to suitability or other process completion and adherence.
■ Failure to complete certain tasks by due dates, which can be anything such as signing off on code of conduct/APER guidelines, fit and proper, and so on.
■ Failure to successfully complete and pass, CPD, e-learning or online knowledge tests.
■ Finally, rewards must be linked to overall performance against all benchmarks, with strong weighting toward compliant behaviours and conduct.
Only then can a firm feel that it is truly managing outputs as well as inputs. All of this represents a considerable investment in time and costs. For many it will require a sizeable shift in attitudes and culture. The change will need to be driven from and supported by the senior management of the firm and delivered through the joint efforts of human resources, compliance and supervisors. Only when advisers understand that there is a determination and commitment to drive this through – that there is no hiding from a process of ongoing assessment and that conduct and compliant behaviours are as important as financial performance – will they themselves buy into the process.
Returns
Getting the biggest return from their investment must be the goal of all firms who want to rise to the compliance challenge. In particular, effective technology and process–based decisions and investments will be key. The most effective technology solutions will be those that manage the inputs as well as managing the outputs.
For example, there are many systems that log CPD. Many firms have chosen to let staff log directly with the relevant accredited body, with oversight by one ‘super user’. This is probably the easiest and most direct way to ensure that the main box – the issuance of
the SPS – is ticked. Could this approach, however, be viewed as ‘passing the buck’? Too many firms seem to be effectively outsourcing staff CPD logging to accredited bodies. The problem with this is that proper oversight is lost: There is often no link between training needs and outcomes.
Just logging the number of hours does not necessarily prove that the firm is taking responsibility for the consequent outputs in terms of staff quality, competence and conduct that the FCA expects.
Hiring
Perhaps the most fundamental input to address is hiring the right people in the first place. The selection process must be objective and based around a wide range of competencies. Too many firms still seem to hire on a hunch – through word of mouth or reputation.
Managers make recruitment decisions then defer the administrative due diligence to HR or compliance. The latter should be involved – if not driving the process – from the start. A candidate’s attitude, their ethics and standards of conduct are as important as their client lists – or at least that is what the FCA is telling us.
Just as most firms feel that they have delivered against the RDR, the FCA seems to be moving the goalposts again. Prudent investment in the right technology will pay dividends in the end, but this is only part of the picture.
The most successful firms will be those that minimise the regulatory impact on service levels through hiring and retaining top talent, investing strategically in areas including training and technology, and embedding a culture of compliance within all levels of the organisation.
Therein lie the greatest challenges and probably the greatest costs of true compliance.
Neil Herbert is director of compliance consultants HRComply
Key points
Rewards must be linked to overall performance against all benchmarks, with strong weighting toward compliant behaviours and conduct.
The most effective technology solutions will be those that manage the inputs, as well as they manage the outputs.
A candidate’s attitude, their ethics and standards of conduct are as important as their client lists.
