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Box of tricks

Making the move from box-ticking to holistic compliance

Compliance is top of the daily agenda when you are responsible for over 100 IFAs and advise 200 more. But regulation and bureaucracy do not have to be man and wife. We take a practical and modern approach to compliance.

Government attempts to legislate and regulate IFAs into good behaviour has created a compliance culture rather than an ethical culture. Too many IFAs have forgotten their ethics and learned compliance procedures instead.

Ethics have gone and audit trails and the slavish observation of minimum rules (often via cut and paste) have moved to centre stage. What use are key features when the client does not read them? If your advisers tell a client, nice and slowly, before putting them into Japanese warrants but after winning their trust: “Your money is guaranteed,” then the client believes. As a general rule, nothing comes in the way of that. In fact, the more paperwork, the less they read. This is the dilemma of all regulation.

We are seeking a new approach to the problem of encouraging IFAs to act with truthfulness, fidelity to clients, plain speaking and with the candid presentation of all the facts. We are trying to move from box-ticking to holistic compliance. Box-ticking is a blunt tool. It is predictable, bland and tends to be meaningless when used to prevent the financial dishonesty, fraud, bad faith, fiction, double-talk, invention, exaggeration, bogus claims and malpractice which stalk this industry.

Compliance by box-ticking is a gift to the dishonest. We believe that attention should be paid to individual employees, with questions like these: are they in debt, are they gambling or drinking or divorcing and have they lost the work ethic? Box-ticking is not enough.

Role-plays and accompanied visits are even more facile and shallow. I had more of these than commission cheques in my five years at Allied Dunbar and they were all a waste of time.

Every Monday, the same manager would stand up and bark that we must improve our sales figures or leave the company. That week’s top sales producer was paraded and lionised and sent on fancy holidays.

This is the thorn in the side of the FSA and this is their great failing – they treat us all the same. Just because one is a well known churner and another would sell his mother at any price does not mean that they cannot join the great FSA club and work in financial services, tarnishing the rest of us.

The FSA can only work on the facts and subjective judgements on moral fibre cannot be seen to be a part of their agenda. That does not hold in a court or tribunal situation so it introduced TCF instead.

But our compliance department can be unfair, subjective and inconsistent. That is our commercial decision and it is our great strength. If we think an IFA has lost the moral boundary, for whatever reason, we say: “Goodbye and don’t come back.” No appeals, no tribunals and no judicial review. Phew. The biggest single trigger is the phone call starting with: “I think there is something you should know about that IFA of yours.”

The biggest obstacle to setting up this ethical culture is the good old commission structure. Almost all IFAs get discounts for high-volume business. For providers and networks, high volume equals better rates. Sales commission targets are the root of all evil and it is time we woke up to this fact.

This is not something that the FSA can sort out for us and until we do sort it out, the FSA will continue to torture us all with those blunt instruments of compliance and box-ticking.

Charlie Palmer is chief executive officer at Financial Ltd


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