Your IndustrySep 15 2016

Regulatory oversight looms over hiring process

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Regulatory oversight looms over hiring process

Even before the Retail Distribution Review (RDR) came into force on 1 January 2013, then regulator the Financial Services Authority were tasked with ensuring advisers were found to be fit and proper, acting in the best interests of their clients and representing positively the sector in which they worked.

Since the Retail Distribution Review, Derek Bradley, founder of financial advisory forum Panacea Adviser, warns those who are recruiting advisers should ensure all experienced candidates have met the requirements set out by the RDR.

He explains: “All advisers must hold a statement of professional standing (SPS) issued by an accredited body, for example, while the Financial Conduct Authority (FCA) also lists a series of additional qualifications that an adviser may need to have, depending on their level of experience and area of expertise.

Older people who can empathise with certain segments of society are reluctant to enter the advisory profession when their experience and insight would be invaluable John Joe McGinley

“The situation will of course be slightly different if an adviser business is hiring someone at a junior level, at which stage it may not have been possible for the employee to gain any FCA-approved professional qualifications.”

Minefield

However, it is not just about making sure experienced advisers have accurate SPS documentation and proper qualifications - although as the recent case of a woman fined £110,000 by the FCA for faking her SPS for two years indicates, the regulator takes meeting these requirements seriously.

John Joe McGinley, founder of Glassagh Consulting, agrees with Mr Bradley that “innovative strategies are needed to replenish the stock” of advisers, particularly after the Retail Distribution Review.

However, Mr McGinley feels regulatory requirements have become a “minefield” for firms wanting to hire newcomers and experienced advisers.

He says: “There is a minefield of regulatory requirements for appointing a new adviser or even appointing an existing adviser to your firm.”

Mr McGinley pointed to the FCA’s guidelines for firms, which includes details on how to recruit, train and supervise staff.

The FCA provides a useful checklist on what firms must ensure when they are seeking to hire an individual. The checklist states firms must:

■ apply for FCA approved person status for their advisers.

■ check advisers for fitness and propriety.

■ ensure advisers are trained and competent.

■ have effective systems and controls to monitor advisers.

■ be responsible for quality of advice.

■ ensure their advisers have an SPS.

■ supply the FCA with professional standards data about their advisers.

■ notify the FCA in the event of serious competence and ethics issues.

■ operate discipline including notifying the FCA if an individual is dismissed.

The regulator’s guidelines highlight the importance of not only hiring the right person with the right qualifications, but also hiring in the right way, with regard to the Equalities Act and without the lure of incentives.

The FCA also takes care to discuss its thematic review work on reducing performance-related incentives and inducements, as well as making sure staff are not required to sell at any cost.

The guidelines state: “Pressure from challenging and stretching objectives and regular discussions about progress is not unexpected in any job. It is not our role to prescribe how a firm should manage the performance of their staff.

“Our focus is on the risks that are posed to consumers by poor performance management practices, which can lead to undue pressure on staff about sales results, which can increase the risk of mis-selling and poor advice.”

FCA: Good practice in recruiting

Having a recruitment process in place to ensure the individual is suitable for the role.

Clearly establishing roles and responsibilities and documenting them.

Putting in place an appropriate initial training plan.

References

If the adviser is bringing a client bank to the firm, ownership proof is vital.

If the adviser has come from another firm, references should confirm any previous or current disciplinary issues - the regulator will expect you to have checked the background of any adviser you hire.

Generally, says Martin Bamford, chartered financial planner for Informed Choice, the regulatory requirements depend largely on the specific role that is being filled.

He says: “Any regulated firm will want to ensure all employees are fit and proper people. Screening for criminal records and getting references from past employers, as well as character references, is a must for any role in a regulated business.

“Candidates applying for roles within our firm expect this level of scrutiny and seem to accept it.”

Furthermore, if you are recruiting to add a new service or expertise to your business, not only will you need to check the adviser has the necessary individual qualifications and provisions, but the firm will have to consider if it needs to update its scope of permission.

According to the FCA, you should review current permission on the Financial Services Register and decide whether you need to vary it if you want to:

■ start a new line of business.

■ start a new regulated activity.

■ add a new product or client type to your business line.

Soft skills

Also, getting older workers to consider a career change to become a financial adviser is getting more difficult so the profession is becoming full of younger people with the right professional qualifications but lacking in life and people skills, according to Mr McGinley.

This is something which needs to be addressed, says Mr McGinley. He explains while advisers have become competent at passing the exams and adhering to the regulations, often they “lack the sales acumen and people skills so evident in the older, experienced advisers”.

He says: “Many older people who can empathise with certain segments of society are reluctant to enter the advisory profession when their empathy, experience and insight into the goals and problems of certain life stages would be invaluable.

“This for me is an issue the Financial Conduct Authority needs to address, while protecting professionalism and advice best practice.”