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David Shelton: Preparing for a new emphasis on senior management


The recent announcement that the senior managers regime is to be extended to cover advice firms during 2018 has been missed by many. Right now there is a lot of change and challenge in the market and this seems a long way off. But this is significant because the responsibility for ensuring senior managers and others are up to the mark shifts from the regulator to the firm. This means they must vet and certify most of the customer-facing people in the business, thereby extending direct regulatory responsibilities to staff not previously requiring approval from the FCA.

Indeed, the regulator refers to “embedding a culture of responsibility” and “holding individuals to account when they fail to meet our standards”. These are strong words and leave no doubt about the importance of this initiative.

What should we make of this? Will it turn out to be a “tick box” exercise, a “sledge hammer to crack a nut” (in this case the senior managers in the banks) or a nudge toward good business practice? At this stage it may be too early to tell but past performance is a guide to the future and initiatives that influence how firms behave and operate often turn out to be quite useful.

Looking back many would regard treating customers fairly, most aspects of adviser charging and many of the governance requirements as sound business practice. That has to be the approach for this new set of responsibilities and business owners should welcome it.

Just for a moment leave aside the inevitable requirements to demonstrate compliance and consider that most principals would want to take responsibility for what their people do, how effective they are and what action to take if things go wrong. In essence this is responsibility being passed back to the businesses where it rightly belongs.

Recent research undertaken by Standard Life on what makes leading advice firms successful identified that attention to roles, responsibilities and the effective development of people was one of the necessities. This may seem obvious but if it works well people are motivated, enthusiastic, client focussed and will go the extra mile for the business. This makes a huge difference to competitiveness, which leads directly to increased profit and value. What lies behind this, in terms of process and management, is close to what will be necessary to support the senior management regime.

To run this effectively roles and responsibilities will need to be allocated to people who are competent to carry them out and accountable for performance. As always there are no short cuts: job descriptions, performance reviews, structured training and development, and effective reward schemes are essential. These should be combined with the framework of responsibilities currently operated by the regulator.

Both of these strands provide the start and firms that have taken them seriously should see no great barriers or costs involved in satisfying the new requirements. However, if the basic people management practices are not in place there is a lot to do.

For senior management the best approach is to identify all the accountabilities carried by the team and then allocate them according to capability and capacity. It may well be that the “controlled functions” are already effectively allocated which provides a starting point to review and possibly update current practice.

This is likely to cover much of what the regulator requires but by blending these with other responsibilities there is an opportunity for these to be seen as “business as usual” as opposed to a regulatory “add-on” that is often considered a burden as opposed to a key function. The same approach applies to the other client-facing roles in the business.

The next step is to ensure you have a robust process for performance review and professional development. This does not formally exist in many smaller firms and, provided there is respect and teamwork, is not necessarily a major problem. However, this is not always ideal and poor practice can become the norm as time passes.

There are plenty of examples, templates and frameworks in the market for designing jobs and straightforward approaches to reviewing and enhancing performance. This does not have to be a bureaucracy but it will be essential to show evidence of process and outcomes to the regulator. But the spin off to the business can be considerable because it means difficult issues have to be addressed which should give a better long-term outcome for the business and the individual. A positive approach to developing people will make this work to the benefit of all as opposed to generating conflict.

Most firms will need a start-up project to make sure the correct job descriptions and other people processes are in place. For some this will be building on good practice, for others it will be more extensive and external support may be needed. This investment of time at outset will make the ongoing operation straightforward and part of the day-to-day running of the business. If you can achieve this then the “good business practice” benefits of this initiative will emerge which should more than cover the cost and time of the initial work.

David Shelton is a consultant at Stoke Bishop Associates


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