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Chris Davies: Cutting through the industry blurred lines

Following the direction of regulatory travel can help firms become more robust, compliant and profitable 


With its continued drive for consumer protection through the application of behavioural science and better understanding for consumer decision-making, the FCA is showing it is determined to break through the grey areas of business practice. 

This is pertinent to better business management because if firms and their people take ownership of their actions and learn to efficiently self-regulate, they will not only comply with regulations but also demonstrate client-centricity, and profitable practice should be a natural outcome. 

Let’s look at the general direction of travel of themes under the scrutiny  of the FCA:

Inducements: Of the 26 life insurers and advice firms surveyed for the FCA’s review of inducements, more than half could have breached the rules. Examples cited included insurers’ spending on adviser support services with little justification of client benefit or partnerships including upfront payments to influence distribution. This, with the Bribery Act 2010, ensures businesses of any size have to demonstrate suitable fraud and corruption prevention measures; ethics and integrity in business have never been more important.

Remuneration: The FCA has highlighted the fact that 73 per cent of adviser firms’ terms of business fail to provide generic information on how they charge, with only 42 per cent explicitly clear on charges.

Service suitability and appropriate products: A common theme cutting through the FCA papers relates to appropriate products and suitable services, and again there is concern for those firms which focus on incorporating complex products, such as Ucits, and ensuring they are marketed and sold correctly.

Guidance vs advice: In my last article I outlined the ongoing regulatory rumblings about online solutions and their unintended consequences. There is a carrot-and-stick approach designed to encourage and encroach techno-logical innovation for automated guidance and simplified advice. Without circumnavigating the RDR, we can apply fresh eyes to the rules and client engagement techniques, particularly given April’s budget. 

Business-to-business relationships: We still have examples where clients are deemed to be “owned” by two or three firms. The fact that terms of business still do not provide enough clarity around the client / stakeholder relationships means conflicts of interest abound.

So what can be done?

Business planning: A clear understanding of the client’s journey and needs can be drafted into business plans and panel management terms and conditions. This will facilitate clear terms of service and boundaries for stakeholder relationships to ensure evidence is given for transparency and significantly enhancing the client experience.

Roles and responsibilities: Ensuring the right people are in the right roles with the right skills will ensure clear communications, satisfied clients and stakeholders.

Regulatory realism: This means a long, hard look at the rulebook to ensure it is suitable for market developments. This is certainly the case for the impartial guidance service the Chancellor is demanding and for incorporating the technology innovations we now see. 

Focus on culture: Building and maintaining a mission statement focused on constructive behaviours, ethics and transparency will facilitate a positive culture strongly desired by the regulator.

Leadership: Corporate governance in collating management information such as annual Swot analysis to provide a process for active due diligence, will provide conduct and a culture for best practice.

Agility: Creating an agile organisation that can flex with the changing needs of markets, clients and regulators is crucial. Technology and skilled staff can play an integral part in generating closer client relationships, more efficient and streamlined communications
and services.

Retail financial services may never run on a level playing field but through a better understanding of the regulatory direction of travel, better ownership of corporate governance and ethics and intelligently collating marfket intelligence and employing relevant technology, wherever they sit in the value chain, businesses can take control of the influence of short-term temptations and build robust, compliant and profitable models that score well with all stakeholders, clients and the regulator

Chris Davies is director of Engage Partnership


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