Regulatory pressures on advice businesses have not been “locked down”

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  • 43 mins 05 secs

Learning: Structured


  • Mark Greenwood, Director of Compliance Services, SimplyBiz
  • Jennifer Peaty, Field Compliance Development Manager, Compliance First
  • Karl Dines, Head of Business Consultancy, SimplyBiz
  • Davinia Rogers, Investment Services Director, SimplyBiz

Learning outcomes:

  1. To understand the most common compliance problems that advisers came across in 2021
  2. To gain an understanding of the FCA's 'Consumer Duty' and what it means for advisers
  3. To understand how the pandemic has changed the investment landscape
Channel: Business Development
PRESENTER: Hello and welcome to our panel today: regulatory pressures on advice businesses have not been locked down. Joining me today from SimplyBiz, I have Mark Greenwood, Director of Compliance Services, Jen Peaty, Field Compliance Development Manager, Karl Dines, Head of Business Consultancy, and Davinia Rogers, Investment Services Director.

So starting with you, Mark, you’re responsible for the compliance helpdesk at SimplyBiz. What were some of the key problems you saw in 2021?

MARK GREENWOOD: We’ve actually this very week just been looking at the stats from last year. So we’ve analysed the calls and emails in to the helpdesk from firms. So February we had a spike of calls. That was on the back of the finalised guidance on vulnerable clients from the FCA. So obviously with the 12 months leading up to that understandably we had a lot of firms asking questions about vulnerable clients. When we took a look and a step back at 2021 in general, the most calls and the most emails we had from firms was around regulatory reporting.

So, only two years ago, most of our firms would just have two regulatory returns to do, the Gabriel returns or as it’s now known the RegData returns, there’s now a lot more regulatory returns, and we did have some confusion with some firms towards the end of the year with regarding the directory and attesting their directory persons information. It’s a fairly newish return and unfortunately it’s not got a predetermined date, unlike the other reporting requirements, so we did field quite a lot of questions from firms on that at the back end of last year.

PRESENTER: So a lot of it was on regulation?

MARK GREENWOOD: Regulation and regulatory return, so when you have to report to the FCA. Two years ago, most of our firms would just have two returns. As we sit here today, it’s now six. So it’s increased dramatically. And they’re used to doing them previous two, some firms were getting a little muddled with some of the returns, so we were helping them out, assisting them. We’ve got quite a lot of guides that assist them. But our helpdesk is the place where they would ring up. That’s the go-to place where they would go for guidance.

PRESENTER: And I know that there’s been a lot of changes, how would you say the FCA has changed its approach to advice businesses?

MARK GREENWOOD: Well, if we go back two years to the start of the pandemic, we saw the FCA delay and even scrap quite a lot of their ongoing work. So Assessing Suitability Review 2 was going to be a big piece of work for the regulator. It was actually a big piece of work for us. We did a lot of pre-work for a lot of firms and then they scrapped the review. As we got through 2020 and into 2021, they’ve started grinding through the gears going up to full speed. So in 2021 an example of that was the finalised guidance on the fair treatment of vulnerable clients. We had that in February last year. And then a key focus for the regulator last year was assessing the financial resilience of firms, what impacts from a financial perspective did the pandemic have on firms. So we had a lot of COVID-19 financial resilience surveys; in fact that’s still going on now, there’s a sixth survey being sent to firms literally as we speak. So that was the FCA having a look at how the pandemic had impacted the finance of firms and obviously from their perspective looking to see any emerging consumer risks or market risks. So that was a big piece of work from the FCA last year.

PRESENTER: And, Jen, you work with advisers on a daily basis. What sort of regulatory problems came out of COVID and working from home?

JEN PEATY: It was really operational probably would be the main thing. When you’re used to seeing your clients face-to-face, you’re used to working with your colleagues face-to-face and all of a sudden you had to try and embrace technology to be able to deliver your clients’ ongoing reviews, being able to communicate with your customers. And some firms were set up for that already. They were perhaps already using technology to do some remote meetings. But there were others that had some real challenges because they didn’t have the technology in place. I had one client who used a satellite office that was locked down. He had a desktop computer, client files and he literally went into lockdown with a mobile phone.

PRESENTER: Right OK, so nothing set up.

JEN PEATY: No, nothing at all set up. So it’s probably operational, but then from a regulatory perspective you’re still, as Mark said, trying to keep abreast of what’s happening within regulation, do these returns. So they actually needed compliance support more than ever. Luckily as a company we were already set up from a technology point of view. The field consultant team were able overnight to start delivering remote compliance visits and support. So again from a company perspective we were quite lucky we could adapt to that, but there’s a lot of firms that weren’t in that position from a technology perspective.

PRESENTER: And coming to you now, Karl, what were some of the business problems that these challenges caused?

KARL DINES: Within SimplyBiz I work from the consultancy side, which is quite narrow but very, very deep, and we work with firms to design charging structures and to design their investment propositions. So, within that area, what I’m finding more and more from firms is they know exactly what they’re doing. They have got their clients’ best interests at heart, everyone’s doing a good job, but they’ve always got a slight niggly feeling in the back of their head, which is, if the regulator came in and asked me, you know, is my charging structure up to speed, have I got documentary evidence that the advice I give is suitable, would I be able to do that? And most firms say probably but not quite and I’m not really sure about this. So it touches on the areas that Jen and Mark touch on in much more detail, but my job is to physically say OK then, this is what the regulator wants, let’s practically build that, if you haven’t got a CIP, let’s build a CIP, but let’s get it documented properly.

The reason why these questions have been asked more and more over the last two years is IFAs have been sat at home twiddling their thumbs a bit, because they haven’t been out and about seeing clients, and so a lot of them have said I’ve got this time on my hands, I’m going to box this bit off. They’ve tried themselves normally to build a CIP, realised it’s highly complex because we need professionals in order to help them on that, then they come to us and we sort it out for them. So it’s more a case of firms knowing they have to do something and then just really getting to grips and doing something about it.

PRESENTER: So, is it, that sounds like, has it been sort of a business upgrade then because they’ve had that time not running round, I guess, meeting people in person?

KARL DINES: Yes, it’s this 60/40 rule, isn’t it? You spend 60% working on your client, 40% working on your business. And the 40% working on the business, a lot of attention has been spent on what does the regulator really want me to see and how do I apply that to my business practically. So it’s taking all the theory that the regulator puts on our industry, as Mark’s mentioned before with all the returns that need to be done, and then working out practically what does that mean in reality, and then how do I then build that into my business and make it work for me to make it actually useful rather than just a burden and another form to fill in. So my job is to take the straightness of the regulator and just look to see how we can make it work within the firm.

PRESENTER: And coming to you, Davinia, we’ve seen in the last two years there’s been a lot of focus on the financial markets, they’ve been a lot more volatile. I mean how has this impacted advisers and their conversations with clients?

DAVINIA ROGERS: Yes, I think what we’ve experienced through the global pandemic, we’ve never used the word unprecedented as much when it comes to talking about investment markets and what’s been happening and the volatility that clients have experienced. From a perspective of how that’s impacted advisers in speaking to clients, it can be almost broken down into four different segments from my experience, and that’s very much dependent on advisers’ demographic of their client bank. So advisers with retiring clients, clients in retirement had more concern because they’ve got less time to recover their assets within the market, versus those clients that are pre-retirement and in that growth stage, and then also variances in terms of how advisers have set up their investment propositions.

So where advisers have outsourced the investment solutions to fund managers or to DFMs, they tended to have less concern from clients because that expected journey was being met and also support from those sources in providing materials to have those conversations with clients. I think it’s been a particularly challenging time, you know, and we were really able to support advisers throughout that whole two-year period and ongoing with more frequent market updates. We ran an investor confidence campaign, providing materials with advisers to give clients that reassurance really. So it’s been a slightly different experience for each advisory firm, but we’ve been able to support a breadth of those firms and they’ve all found it incredibly useful.

KARL DINES: It’s funny, because the interesting thing you were just talking about there, Davinia, when you’re looking at the different areas that advisers are looking at with their clients and the different stages in their life, that’s the sort of thing that you can build into a working model for a CIP. If you take product governance, for instance, as the driver within a CIP, you’re going to segment your clients. Pre/post-retirement is normally one that firms go for. But within that there will be different relevant financial instruments which are best suited for them clients, so stuff like the risk-controlled funds or risk-managed or MPSs. And all this sort of thing is floating around our industry, and the regulator wants us to do certain things with it, such as Suitability of Advice 2, which although it was canned is still a big thing on the radar because they are looking at what happens to the retirement market because it’s a completely different risk scenario. You can literally take all that information and put it into a CIP so it works for you. And then all of a sudden it all starts making sense. Instead of being little parts of the things that you need to look at, you can bring it all together.

PRESENTER: Davinia, is investment strategy actually changing?

DAVINIA ROGERS: What we’re definitely seeing is a change in investment proposition that advisory firms are adopting, particularly off the back of the pandemic. Pre-pandemic, we were starting to see a shift anyway, but the pandemic has almost accelerated that process. And that’s really because during the pandemic those advisers that didn’t outsource those investment decisions weren’t able to act as quickly and react to markets; whereas those that do outsource, they didn’t have as much concern because they knew that that was being taken care of and those decisions were being made off the back of all the research that the fund management groups have. So we’ve seen a shift in how advisers are looking at outsourcing now and the number of advisers that are adopting outsourcing. Whether that’s through multi-asset solutions, model portfolio services administered by a DFM, so we’re seeing a huge uptake in those types of solutions and a move away from stock picking and running advisory models. So it has accelerated that shift that we were seeing pre-pandemic. And I think, Karl, you can resonate with that, given some of the work that you’ve been doing with firms on centralised investment processes.

KARL DINES: Absolutely. Firms are now concentrating on creating good client outcomes. They’re there saying OK then what’s the best route for my client, which is the best solution, which is the best tax situation for them, the best wraps, platforms and stuff like that. They haven’t got time to put funds together, they really should be outsourcing that to a third party, and as Davinia says that has accelerated to the extent now where when we do consultancy work we hardly ever see anyone building their own in-house portfolios. They’ll give that to the experts to do. The trick is from an adviser’s point of view is to pick the right expert, and this is where the CIP comes in, is to say what is going to produce good client outcomes, therefore what questions do we need to do research on, and then do the research using software. Software is absolutely the way forward for that. And then getting that all documented in a way which if the regulator came in and says why are you using this platform, going down this route and using this particular investment, it’s all there in black and white, you know, and that really is the big thing, it’s the evidence side. And that’s going to become even more important when we get into the Consumer Duty, which is due in July of next year.

PRESENTER: We move now to section two, which is how can advisers meet these challenges? Coming to you, Karl, the FCA are now asking advisers to show they provide value, how can they do that?

KARL DINES: Oh, very good question. This is all about the Consumer Duty, which there has been two consultation papers on that now. We’ve got CP21/36 which came out in December. That’s obviously still in consultation, due to finish in February the 22nd. The Consumer Duty is due to go live at the end of July with a nine-month implementation period. So it’s a big boat, there’s a lot of stuff in there, and we haven’t got much time to build that into our common practices. Now, the Consumer Duty introduces a new principle. So this is going to be 12 principles rather than 11 principles, therefore it’s a big thing. It’s basically like Moses coming down and going I’ve just had a word with him upstairs, we haven’t got 10 Commandments now, we’ve got 11, right, and that’s how important it is.

The whole thing about Principle 12, obviously, which is the principle for consumer duty, is making sure that clients are at the centre of everything that a firm does in order to provide good outcomes. It takes into consideration Principle 6 and Principle 7. These are the ones about treating customers fairly and also making sure things were clear, fair and not misleading. It also takes into consideration product governance. So if you wrap all that up together, basically the regulator’s saying let’s get some more rules in place which actually is going to demonstrate that the client is at the centre of everything you do. Now also that involves making sure that there is a value for money scenario as well, so the regulator is looking for firms to produce a value statement. Now, when I say firms, I’m talking about manufacturers, which is the big guys, but we’re also talking about distributors, which is the not so big guys, from maybe your multi-outlet IFAs to even your sole trader. Now everyone’s going to be taken into consideration in the Consumer Duty. So how would you make sure that you do have value for money? Well, the first thing you need to do is ensure you know how much your advice costs, because that’s your service, and then you would peg it against certain benchmarks and certain MI that the regulator would like the firm themselves to identify, and they would identify it based on guidance from the regulator obviously.

So it’s all a bit up in the air at the moment, but it’s very much practically what does a firm need to do to basically say this service we provide is valuable and this is the reasons why. And you aren’t going to do that unless you know how much it costs to bring your service to the marketplace, what your charges are, what ancillary service you can bring into that. So at the moment it’s a bit up in the air about what these actual parameters or criteria is going to be, but the regulator is basically saying to firms, we’re not going to prescribe what they are but it’s going to be proportional to the size of your business, because the big guys are going to do a lot more work than the small guys. But basically everyone needs to make sure that they actually put these parameters in place and monitor it.

Now, the last part of the Consumer Duty is the fact that the regulator would then be able to ask on demand to see documentary evidence of the monitoring that they’ve put in place and also their statement of fair value. And they also want to make sure that someone within the organisation is responsible for that. So that’s going to introduce SM&CR into it as well. So the regulator’s saying, be good guys, make sure that you look after your clients, document it and if you don’t we’ll know who’s responsible for it. So it’s pretty far-reaching.

PRESENTER: Right OK, so it’s quite a big shift.

KARL DINES: Yes, we’re going to need a bigger boat.

PRESENTER: OK. And coming to you, Davinia, how can advisers show value for money from an investment point of view?

DAVINIA ROGERS: Well, just touching on what Karl said there from a manufacturer’s perspective I think we can deduce that actions likely to be consistent with Consumer Duty that fund managers and product providers must now consider if a product is meeting the needs of that target market. And that’s really important from an adviser’s perspective in terms of what they’re recommending. The modern day advice process is no longer a push marketplace where asset managers and product providers are pushing solutions into those supply chains of advice firms, but now advisers are in a position to drive those products and those solutions and actually pull investments in particular into their supply chains that fit within their centralised investment proposition.

Now, having access to solutions that actually align with, if we come back to technology, align with the advice process and technologies that advisers are using and being able to give firms a range of solutions that fit with that, that really does start to demonstrate added value from an investment perspective over and above, for example, using solutions that aren’t aligned to that advice process. So, as Karl mentioned, there’s still a lot to come out of this and there’ll be many more ways in which we can support firms in overcoming some of the challenges that the Consumer Duty is going to present for advisers.

KARL DINES: Yes, because the idea of value is not just the price.

PRESENTER: I was going to ask that, yeah, is it purely financial?

KARL DINES: The idea of value is, no, basically the price can be what it is, what’s also important is the benefit you get from the product or service. So you could have something that’s quite expensive, but if you’re getting a lot of benefit from it then it’s value for money, you know, and that’s the way it works. So it’s not all about how much things cost, it’s how much do things cost and what are you getting for your money, and what you’re getting for your money is what Davinia was just talking about, there are various solutions which will give a client an added benefit over and above a normal relevant financial instrument. That’s because it’s more benefit to the client, therefore it’s more valuable.

So it really is the interaction between these two areas. But, as I mentioned earlier, if you don’t know the price of your services or your products, how can you see how valuable it is. So the starting point is to sort out your charging structure and understand exactly what the cost is of that.

PRESENTER: Jen, I think it’s quite easy with value in defining it, we can get quite top level and theoretical with it. You work with advisers out in the field, so to speak. What are some of the best way that you’ve seen value demonstrated?

JEN PEATY: I would say during the pandemic particularly it’s made firms actually stop and look at how they do things. They’ve had to revise their business model and their processes. The biggest way is through technology and, as Davinia had mentioned, through outsourcing. So, to give clients that value, you’re looking to give them the market updates through the downturn that we had in 2020. It’s being able to give them that reassurance. For a lot of people they want that face-to-face with their adviser. So being able to use the technology to do that but then also to have the output from some of these systems where they can get the end-to-end review process, they can get the valuation packs, the review packs, and also using the technology to do secure messaging as well. There’s different ways they’ve been able to do that and add value, and that’s for the benefit of the end consumer, as Karl says.

PRESENTER: And I guess on that tools and technology, what tools and technology can really help in these situations at providing value?

KARL DINES: Tools and technology is just basically where the whole industry has gone, it’s as simple as that. You know as well as me, Mark, because we’re pretty much seasoned people within this industry, you must have seen loads of changes yourself.

MARK GREENWOOD: Certainly. I like to think I’m relatively young, but I’m 51, but the journey, particularly in the last five years I would say, you know, some firms I would say five, six years ago were quite resistant to technology. The pandemic sped that up, there’s no question about that. Firms that I used to see that technology was not their thing at all have adopted it and seen the benefits of it. And now, hopefully, we’re coming out of the pandemic, touch wood, that’s not just pandemic technology, that’s technology forever. That’s adopted in their business now and that’s going to be business as usual for them.

So yes, certainly, obviously Defaqto is part of the group we’re in. Things like income drawdown tools where clients, the accumulation can turn up and turn down income and risk, it’s really kind of valuable with the client, you can show the client, look, if you take in this much income in good, poor, average market conditions, and you can really have that rounded conversation with the client. Rather than just figures, it’s actually showing the client in picture form, if this happens your money’s likely to run out then, if this happens, if you take less, and they can dial up and dial down, and I think those types of tools are really embedded in firms now.

KARL DINES: Now, that’s interesting, because what you’ve touched on there is Suitability of Advice 2 by looking at what do you do for your clients who are in and at retirement. You’ve touched on the fact that that should probably be built into a CIP with product governance, and we’re also touching on the fact that you need software in order to do this properly, which therefore builds a whole package which is valuable to a client, which is Consumer Duty. Then you’re looking at the relevant financial instruments that Davinia’s talking about, and it all starts coming together. All these parts are adding up to one big picture. And this is where the regulator’s going with the Consumer Duty is how do you actually convey that to your clients and also to the regulator if they asked. So you need experts in all of these different fields in order to bring it all together, because it all matches.

DAVINIA ROGERS: Yes, I think as well the technology has really increased in its development, and advisers are now much more seeing the real benefits of having those efficiencies, from kind of back office right the way through to the end-to-end process of that advice process, and I think the development of technology sped up by the pandemic has really allowed advisers to start to see those benefits with their clients, being able to demonstrate, as Karl says, with their clients, so I think that is really key going forward. And firms that are building these efficiencies in are enabling themselves to also become more profitable, look after their clients better and take more clients on and improve that servicing level that they deliver.

PRESENTER: And I think talking about how they can serve clients better, and you spoke about this, Mark, at the beginning, how can advisers best protect then vulnerable clients, you talked about that as an issue?

MARK GREENWOOD: Yes, obviously that was a big piece of work for the regulator before the pandemic, so that’s certainly sped that work up. We had the finalised guidance on the fair treatment of vulnerable clients last February. A good starting point for firms, if they’ve not read that paper, is to read that paper. For an FCA paper, it’s quite an easy read. It’s 56 pages, I need to get out more quite possibly, but it’s 56 pages. Lots of good practice, poor practice, firms can benchmark themselves against that. We have a vulnerability hub. I’m conscious not everybody watching today uses SimplyBiz’s services. My bosses would like that, but that’s not the case. I think for firms, if I was giving a piece of advice, we’ve been working with the Financial Vulnerability Taskforce. Again they’ve got a lot of materials, lots of support, not just policies, procedures, how to tackle challenging conversations with clients. You know, I think a big piece for me and a big piece that comes out of that FCA paper is staff training on the fair treatment of vulnerable clients. We have our own online training and we run workshops. For firms that don’t use our services, Just, for instance, have a really good vulnerable clients training module, that’s worth looking at, and the Financial Vulnerability Taskforce very much so. We’ve been working really closely with them.

So I think read that FCA paper from last February, benchmark your firm against it. And I think, to use an X-Factor phrase, we’ve all been on a journey when it comes to vulnerable clients, I certainly have in the last three, four years, the knowledge and all the materials are out there, you know, we’ve done a lot of work at SimplyBiz on it but allied with the Financial Vulnerability Taskforce, there is a lot of material out there.

PRESENTER: And coming to you, Davinia, for these, we’re talking about challenging conversations with clients potentially. We’ve seen with the markets, like we say, have been difficult, how can advisers help their clients feel more comfortable about that landscape?

DAVINIA ROGERS: I think the first key point really in the shorter term is the communication with clients and as Jen alluded to having that ability to communicate digitally with clients as well. So, from a shorter-term perspective, having the resources and the support available to provide advisers with the information they need and to be equipped to have those conversations has been really key for us. I think over the longer term, from a client concern over the investment landscape perspective, where we see advisory firms adopting technologies that have got a robust strategic asset allocation that sits at the heart of that technology and then being able to articulate what that client’s level of risk is to the client and communicate that with them, going forward that tends to remove a lot of that concern over the investment landscape because the client knows what to expect.

So the ability to use a tool like that, Mark mentioned Defaqto, that’s what we have available and we support a lot of firms with that, that conversation with the client is key. And that as a starting point really does support advisers over the longer term to reduce that nervousness that clients might have with the volatility of markets, particularly with what we’ve experienced in the last couple of years.

KARL DINES: The interesting thing about that is there’s four outcomes in the Consumer Duty, keep talking about it, there’s four outcomes in there, which is governance on products and services, it’s price and value, communication, making sure it’s clear, fair and not misleading, and then client service. So this idea of being able to communicate in whichever manner is the most suitable to your target market in a way that they can understand is very important and then software can help do that. But vulnerability is mentioned throughout this document, right the way through every time. So there’s common themes coming out from the regulator here all the time: everything needs to be client facing; everything needs to be easily understood, communicated correctly; and documented and make sure that people are responsible for it. And all the different areas that we do in our day-to-day jobs is basically driving that forward and making it work in practice.

DAVINIA ROGERS: So yes, I think that the key part of the jigsaw, the last piece of the jigsaw and the end of that process, Karl, really is having the ability to use solutions that fit that conversation. Solutions that advisers can access, that they know are mandated to deliver to those expectations of risk and return, and that really is the ultimate key, having that ability to have the conversation and use a range of solutions that are going to deliver to the outputs of that expected client journey, and that’s really key from a value for money perspective as well and the additional value that advisers are adding in being able to access those types of solutions for clients.

KARL DINES: Yes, it’s all interlinked. What you’re talking about there is specific relevant financial instruments which are going to be specific to the segments within an IFA’s client bank, which is product governance. Which is basically what the Consumer Duty is about again, as we keep going around in circles, and it all keeps coming back to that, you know, and that’s the interesting thing is we’re all talking about separate stuff but it’s all very much interlinked.

JEN PEATY: I think the awareness is there with advisers, it always has been, they would be able to tell you who their vulnerable clients are. But it’s being able to demonstrate that you know who they are and that you’ve taken that vulnerability into account before you’ve made any recommendation and having evidence of that…

PRESENTER: It’s the evidence which is key.

JEN PEATY: Yes, so in the field that’s really what we’re trying to explain to advisers is they know what it is, but it’s being able to demonstrate they’ve done the appropriate training with their staff and they have that list there. If the FCA came in and said what have you done for vulnerable clients, they can demonstrate, well, these are the steps that we went through before we’ve actually given any advice in that area.

PRESENTER: And coming finally to you on this, Karl, so we’ve spoken a lot about how advisers can meet these challenges, I suppose from a business point of view hopefully wherever there’s challenges there’s also opportunity to an extent, how have advisers been using this to grow their businesses or improve them?

KARL DINES: When we do work on charging structures, we basically do a virtual time and motion exercise. I will say right then talk me through your advice process, who does what, how long does it take and when do you do it? Firms will absolutely always underestimate how long a job takes, and even if they know that they are going to underestimate, they still underestimate. It’s just a fact of life. And honestly the number of times that I come out of a consultancy meeting once we’ve done charging structures and firms have gone my God I didn’t realise it cost that much to actually do what I’m doing, I’ve got a much better picture of where I’m going to go in my business now, I know where I need to fill gaps. They know where inefficiencies lie within the business. Because if you take them through their advice process and they realise that they charge, theoretical, £150 an hour and they’re spending three hours in a client meeting, that’s quite a lot of money when you’re actually looking to do a value statement. So the whole point of doing the value statement and doing this time and motion is to seek out these inefficiencies, make them bigger, better and stronger from that point of view, make sure the charging structure is fit for purpose and it works for them, and that drives the business down to efficiencies. And guess what they do then. They then use software and they use relevant financial instruments and they use everything at their disposal better.

So just by going right the way back to the basics on how do you charge and what funds do you use and why do you use this and whatever, it will basically find out where the little inefficiencies are, where the cracks are within the business. So you can make them bigger and stronger. So, just this whole exercise itself will just drive forward a sleeker and a faster business, as long as they’re prepared to take that on board.

PRESENTER: We now move to section three, which is looking forward. So, coming to you, Jen, first, what do businesses and advisers need to focus on for 2022?

JEN PEATY: For 2022, there’s a couple of areas I would say. The first one, the regulatory one is SM&CR certification. You need to have a body of evidence in place to show that these advisers are fit for the role. The regulator would expect you to have that there. It’s a very time intensive exercise having that type of supervision in place, and we have a lot of firms that outsource it to us. We have got a T&C scheme. Firms sometimes have their internal T&C schemes. But again it’s a very time intensive exercise, so it’s definitely something that they have to concentrate on this year, because the regulator may well follow up on that and a kind of spot check exercise in the future.

The other area I would say is futureproofing your business. We’ve talked about working more efficiently and working in a more profitable way. What Karl does with the CIP and working out the cost of your business, for firms that are looking to sell in the future, that’s a really important exercise to look at that so that they can actually drive up the value of their business, but in order to do that they also need to look at the regulatory side and is there a risk premium in there, is the regulatory structure actually going to put the value down to a certain extent. So it’s really important they look at their business model and look how they want to work going forward and other technology and outsourcing that they may want to bring in as well.

KARL DINES: If a firm can put their business into a better position and drive out any risks for a buyer and drive in efficiencies and make it more profitable then they’re going to be worth more. It’s literally as simple as that. If you’ve got two firms and one firm’s got everything documented and boxed off, and they’ve got all the compliance done, you know, and you can see exactly how much it’s worth, what the charges are, they’ve got great MI on their client bank, which they’ll get from software, that’s absolutely worth more than another firm who’s got 15 filing cabinets. It just stands to reason. So anyone who’s looking to exit out of the industry certainly within the next three to five years, now is the time to start getting that ship in order, because that makes-

PRESENTER: Right, that’s what buyers would look at.

KARL DINES: -it makes it more valuable. It’s the same with anything and we’re looking at something here which is intangible, but there’s so much MI you can drive out of that if you’ve got the right software to do it.

DAVINIA ROGERS: I think as well on the back of that, Karl, you’ve mentioned there having those processes and efficiencies, that’s the same in terms of investment solutions as well. If everything has followed a process and been aligned and risk-aligned and risk-controlled then that makes a business much more valuable than somebody taking on a business, for example, where there’s been a lot of individual stock selection going on and there’s not that much control over the risk that can be demonstrated potentially. So, from an investment perspective as well, getting that investment solution aligned to the outputs of that technology is really going to drive the value of businesses up.

JEN PEATY: When we look at due diligence exercises for these firms that are looking to sell, all of these areas are brought in, so you’re looking to provide a report to a potential buyer that from a compliance perspective you know everything is in order, but it absolutely brings in things like the software that’s used, the investment solutions, so that the buyer, it can be a streamlined transition into their business, rather than it being an intensive exercise to bring the firm up to speed, so it definitely would affect the value.

PRESENTER: And on that compliance, coming to you, Mark, what upcoming regulations would advisers need to look out for this year?

MARK GREENWOOD: Well, we’ve got Karl’s favourite piece of FCA work, the Consumer Duty. But I’m not going to talk about that, Karl’s mentioned that. But yes, we get the final rules for that in July of this year. So joking aside that will be a big piece of work and that’ll be a big focus. I think ESG. We, last year, saw record asset flows into ESG solutions. There’s various reasons for that. I think more social awareness from clients on things like climate change and there’s more ESG investment solutions out there as well. We should have had last year some rules coming in requiring advisers to take clients’ sustainability preferences, but we didn’t have that because of Brexit. But we do know this is a key area of focus for the regulator. We had a paper last November from the FCA that set out their strategy on ESG. So we’re still waiting. We expect quite a lot of activity from the regulator when it comes to ESG this year.

I think more practically on a day-to-day basis, I totally agree with Jen on SM&CR, you know, it’s two years into that regime now for firms. I think the regulator will be looking to make sure that firms have embedded the requirements of that regime. So I do think that will be an area of focus for the regulator and should be for firms as well. I think more generally, I touched before about regulatory reporting, I just want to make sure, certainly when I’m speaking to firms, some of these regulatory returns that firms have to do are not a big piece of work. A lot of them can take two to three minutes literally, some of these new returns. They just need an aide-mémoire, some kind of compliance monitoring plan, we have obviously a compliance monitoring plan, so they don’t miss these important returns. Unfortunately, we saw towards the end of last year some firms missing the requirement to attest their directory persons information, and unfortunately that led to a £250 administration fee or fine from the regulator. So it’s just making sure, whether it’s a compliance monitoring plan, whether it’s your Outlook diary, just make sure for the 12 months ahead you know when these returns, what they are and when they’re due and then that will save firms from getting these £250 fines from the regulator.

PRESENTER: And coming to you, Davinia, so we are in an inflationary environment, what should advisers be encouraging clients to invest in?

DAVINIA ROGERS: Yes, we are in an inflationary environment at the moment. I think what we really need to bear in mind is that there is an investment cycle and when we’re looking at investing we’re looking at investing for the longer term, so the cycle will come round again no doubt. The key here is the diversification. So it’s ensuring that clients are invested in diversified portfolios. A lot of return is driven from strategic asset allocation. So those firms that have partnered with a robust strategic asset allocation at the heart of their processes will have clients invested in those diversified portfolios. It’s never a good idea to make any kind of kneejerk reactions or try and predict the markets and what’s going to happen, you know, and that’s the reason for the diversification, because some asset classes will perform better than others over time.

I think where we’ve got outsourcing of investment solutions, advisers, they don’t need to be worrying about the messages that they’re delivering to clients, because they’ve got the confidence that the fund managers and the research teams behind them will face the challenges and make decisions on the challenges around the fact that we’re in an inflationary environment. So the key for me for the longer term and certainly how we support a lot of the firms is to reinforce that message of diversification and how that can benefit the client and help to deliver good client outcomes at the end of the day.

PRESENTER: And finally coming to you, Karl, so how can advisers best position their businesses for the year ahead?

KARL DINES: Guess what I’m going to say!

PRESENTER: Consumer Duty!

KARL DINES: Consumer Duty.

PRESENTER: Consumer Duty, thought so.

KARL DINES: Get your head around Consumer Duty, definitely, that’s my major focus. In CP21/36, which is the latest consultancy paper, they put the draft guidance notes in there, 29,000 words. There is a lot of stuff in there.

PRESENTER: Right. What’s that in pages then? So we had 56 for the other paper.

KARL DINES: Oh, I have no idea, because I just basically downloaded it and put it on a Word document. Funnily enough I managed to edit it down to 8,000. There’s a lot of stuff in there and there’s a lot of repeating stuff in there. But, going forward, everything that these guys have said is vitally important, because you don’t want to be fined. You want to make sure that you’ve got all your systems and processes in place that demonstrate that you’re doing what you should be doing. But, going forward, this idea of bringing it all together with this Principle 12 that’s coming in is one of the major things. And that encompasses everything that Davinia’s been talking about as well about having a really strong, robust, repeatable, risk-rated set of investment solutions that fit the target market.

So if I was going to say anything to firms to concentrate on this year it would be your own business and make sure you’ve got everything documented, making sure you’ve got all that behind the scenes stuff nailed down because that’s going to demonstrate your value for money and that’s what the regulator’s going to want to see.

PRESENTER: So unfortunately that is all we’ve got time for today. Karl, Mark, Jen and Davinia, thank you for joining me today and thank you for watching.
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