The scenario: You are the risk and compliance director of a wealth manage-ment group which
has a number of distribution channels that are geographically disparate and there are a significant number of appointed representatives associated with each regulated entity.
You have recently read the FCA’s thematic review of incentives. You have been struggling for a
long time how to make the business can provide appropriate and justified incentives. The report from the FCA has given you the opportunity to review the whole area. So what should you actually do?
A few of the key factors to consider are:
- What incentive arrangements are in place?
It is imperative that your team understands what incentive schemes are in place at each regulated entity and within each AR.
This is no easy task, but it is important to understand the types of group-wide and, where appropriate, firm specific incentives in place.
Your team is stretched and so an appropriate means of achieving the goal would potentially be to ask each of the regulated entities’ managing directors for attestation of the schemes running, the levels of incentives paid and the quality measures applied. This approach has the advantage of ensuring that the MDs understand the importance of this issue, whilst ensuring they retain overall responsibility. Your compliance team could take this data and undertake a more detailed review on a risk basis.
- Governance arrangements
You would need to establish the governance arrangements in respect of incentives. Who approves them? Is approval required, and at what point, from the group board?
- Conduct issues
There is no better way to identify poor behaviours that could be driven by incentives than looking at business quality and the relationship with incentives. Therefore this is an appropriate time to review the business quality monitoring arrangements in place, and the MI associated with this. As well as this, it is vital to review whether the analysis of business quality includes consideration of incentive-driven poor behaviours.
Your compliance and risk team has long bemoaned the fact that business and operations staff across the group do not pay sufficient regard to the relationship between incentives and business quality.
You need to ensure that your team is correct in its viewpoint and importantly you will need to get the whole business aligned over this issue. The key to improving this situation is to run training / awareness sessions for all staff and dispelling some myths that this issue is one only for the largest global banks – it applies to all businesses.
- Management information
The FCA has stated in its findings that many firms need to establish better MI on incentives.
The group has myriad sources of data but none is solely dedicated to incentives. The ideal would be to utilise existing data to establish the outcomes of the incentive schemes that are in place.
Each regulated entity would need to identify the data that would enable it to assess and analyse the affect of incentives on behaviours and hence on consumers. Where this data does not exist or is incomplete then appropriate measures would be expected to enable the impact of incentives to be routinely and accurately monitored.
Simon Collins is managing director of RGP Compliance
- Identify what incentive schemes are in place for all employees or ARs
- Establish or review the governance in place for incentive schemes
Managing the quality of incentives programmes is not just an issue for large banks
- The FCA expects regulated businesses to use MI to review the impact of incentives on adviser behaviour and clients