The problem with compliance, as Brett Davidson so succinctly puts it, is that

“only advisers using charging systems designed 300 years ago by product manufacturers think they have to work for free.” And therein lies the crux of the matter.

“Our (THE IFA) whole industry has been set up by product providers to sell products, a system designed back in the “good old days”.”

“Don’t get me wrong, I know it was successful, but this has meant that the sales process is set up to do just that. Which then means that compliance checking, with all the monitoring, measuring, Ts & Cs, even professional indemnity insurance, is centred around this process.”

Frustration

“We are having issues with this now because our post-Retail Distribution Review world was formed to sell advice , not products. Many firms we speak to are becoming increasingly frustrated (oh and there is so much frustration) with compliance monitoring, particularly file checks where the advice has been good yet the file has been marked ‘not clear’ because there was something missing, like money laundering, or updated terms of agreement.

“In addition, we now have administration and paraplanning staff who are all part of the advice process and have their role to play in providing this to clients.”

Solutions

What would we like the industry to do? We would like the industry to redesign the process so that it is fit for purpose.

We see this as three separate parts: administration process, investment process and advice process.

1. The administration process:
   1. This would be a tick-box exercise with responsibility given to either administrators and/or paraplanners.
   2. All the standard requirements would be included, e.g. terms of business, money laundering. You could put some really meaningful management information here too that would monitor the relationship with the client. Having a client ‘take-on’ and ‘review’ process would help.
2. The investment process:
   1. This would measure consistency within the firm responsibility given to paraplanners and/or advisers.
   2.  Have they followed the internal process? If not, why not? Is there an updated attitude to risk and cash flow  forecast on file?
   3.  It would also look at client base and test suitability of the investment process against the needs and objectives of the firms’ clients.
3. The advice process:
   1. This assesses the quality of advice given by the adviser as well as ensuring they have made it clear to the client so that they can make an informed decision to decide if the advice was suitable. http://www.ifaonline.co.uk/ifaonline/feature/2309581/how-to-write-a-watertight-client-file .
   2. The responsibility here is with the paraplanner and/or adviser. If a file is being checked, the person checking it should be at least as qualified as the person who gave the advice, so that they can challenge the adviser from an informed position.

Each of these three areas has its own elements of risk that need to be monitored separately when it comes to assessing risk within the firm.

• Having an unsigned terms of business letter, although important to measure and monitor, does not pose the same risk as providing bad advice.

This needs to change and it needs to change now. All of the above will protect the business in a far more holistic and useful way.

http://www.ifaonline.co.uk/ifaonline/opinion/2332372/why-is-this-advice-marked-not-clear-re-thinking-compliance?utm_term=&utm_content=Susan%20Jordan%2C%20director%20at%20consultancy%20The%20Phil%20Billingham%20Partnership%2C%20on%20why%20the%20world%20of%20complianc&utm_campaign=IFA.AM_Update_RL.EU.A.U&utm_medium=Email&utm_source=IFA.DCM.Editors_Updates