Along with Christmas, December will bring a new set of regulatory rules that, to be frank, are not gaining much attention.
Financial advisers I speak to say the Senior Managers and Certification Regime, which replaces the approved persons regime, will not affect their businesses because their ‘treating customers fairly’ is excellent. I do not doubt that many advisers’ TCF is excellent. Most of them have treated clients fairly and every piece of research I’ve ever seen shows that money under advice outperforms the DIY investor, and client satisfaction levels are high.
For the highest standard of suitability, financial fact-finding should be done face to face. Only then can the secrets of what people spend their money on be obtained.
I’ve heard the strangest and saddest reasons around why people spend money, including partying, buying handbags, supporting elderly parents and children, and gambling. But fact-finding full income and expenditure patterns alongside risk profiling generally results in fair and suitable advice. Just as face to face fact-finding is embedded in firms, so – I believe –is TCF.
Banks came under the SM&CR in March 2016; this regulation is now broadening to include advice firms. This is a governance and cultural change required within regulated firms. The initiative should be led by the business, not HR or compliance. And those that ignore the SM&CR do so at their peril.
Resources need to be allocated now to set objectives and accountabilities for all layers of the business. Management information must be realistic, comprehensive and actioned.
Leaders need to step up and lead, not tuck themselves away in the best office. And – of course – good behaviour should be rewarded.
Culture change is one of the most important and impactful introductions made by the FCA in recent years. Wikipedia defines culture as “the social behaviour and norms found in human societies, as well as the knowledge, beliefs, arts, laws, customs, capabilities and habits of the individuals in these groups”. If financial services companies recruit good people who respect compliance, take personal responsibility and are clear in their accountability, a big part of the SM&CR is delivered.
But, even with all these behaviour types ticked off, there is a risk left unaddressed. I’ve always said that you can have the highest standards of advice from culturally shiny, diverse financial firms but, until there is regulation around financial products like they have in the US, there remains the potential to provide unsuitable advice.
Kim North is managing director at Technology & Technical