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Firm but fair

Technology has long had a symbiotic relationship with regulation. Many of the regulatory changes that we have seen in the last 20 years would have been almost impossible without technology. Take disclosure, for example.

Over the last 15 years, the three main industry portals, AssureWeb, The Exchange and Webline, have delivered approaching 1.25 billion illustrations to advisers and their clients. Obtaining these is now simply a matter of entering a few details into the portal software and a few seconds later you get the necessary documentation.

Imagine how many illustrations would have been possible if we were still using the quotation procedures in place before computers.

I am just old enough to remember the days when providing a life quotation meant one person calculating the quote and another checking it before it was passed to the typing pool, from where it would return a day or so later before being subject to a third manual check.

It is worth remembering that today’s key features and key facts documents also require vastly more detailed information than was required in the days of individually typed illustrations.

Advances in technology did not drive greater disclosure but they did make it achievable.

Equally, the introduction of hard disclosure from January 1995 following the retail regulatory review caused portals’ transaction volumes to explode.

In The Exchange’s first year of trading in 1992, it produced around one million quotations. This increased tenfold after the introduction of hard disclosure in 1995 and by 1999 it had mushroomed to 68 million quotations. The last published figures covering the year to October 2007 saw 127 million quotes generated.

I believe we are about to see a similar regulation-driven increase in the use of software systems by advisers, specifically client management systems. It is generally accepted that about one-third of adviser firms still do not have a client management system.

To emphasise this, Bankhall’s new Portavista platform has integration with client management systems as one of its cornerstones but I understand that Bankhall still believes it is necessary to develop a stand-alone version for advisers with no such system.

I have seen a lot written by representatives of various software providers suggesting that their products are a panacea to all the problems connected with meeting the regulations on treating customers fairly.

My understanding is that this is far from the case, a point confirmed last week by FSA spokeswoman Andrea Kinnear who pointed out that: “Client management systems can make a contribution to delivering TCF but on their own are not sufficient to demonstrate that firms are treating their customers fairly. What constitutes TCF will differ from firm to firm, depending on its size and the market in which it operates.”

The FSA said last week that its enhanced TCF strategy for small firms will begin in Northern Ireland in March. Announced originally by FSA chief executive Hector Sants last year, this will include regional roadshows followed by structured visits or phone interviews. This year, the FSA plans to assess 3,000 small firms in this way, increasing to 4,000 next year.

The campaign has all the hallmarks of an iron fist in a velvet glove and I cannot help thinking that any adviser firms which do not yet have a clear understanding of their TCF strategy should be addressing this as a matter of urgency or planning what occupation they will be following once they cease being authorised.

As I understand it, TCF is about creating an iterative process where firms look at their methods of operation, identify from measured analysis what areas they need to address and develop a plan to tackle these. This process should be repeated periodically to assess the success of the action initially taken and to identify such further action as may be necessary.

Based on this, I believe that advisers need to not only have the necessary management information at their fingertips but also be able to demonstrate how they have used that data to reach conclusions about the way they deal with clients and plan a strategy to address such shortfalls as become apparent.

It is not just a matter of telling the FSA that you treat customers fairly but being able to demonstrate that you have investigated how you treat your customers, what lessons you have learned in the process and what you have done to improve your service.

To look at an example, page 33 of the FSA’s culture document referred to in the table (left) examines whether, as an adviser firm, you are able to measure the relationship between the remuneration, commission and bonuses that are paid to staff and the performance of those staff in relation to TCF.

This appears to be suggesting that advisers should examine the persistency, compliance performance and complaint record of all staff in relation to the levels of remuneration they are paid, especially additional remuneration such as bonuses and commission.

I can see two ways of doing this. Either you keep all such case, client and commission records electronically to be able to carry out detailed cross-referencing of such measures or you engage in a massive manual process to achieve the same thing.

Using the former approach, most advisers will need to make far more use of client management software than they do currently. The manual option almost certainly means you will spend so much time trying to meet your TCF obligations that it is unlikely there will be any time left to advise clients.

Meeting the TCF requirements is not going to be easy but it is not the role of the FSA to make an adviser’s life easy. Its concern, rightly, is consumer protection. I suspect that the FSA will not shed any tears if, while enforcing the TCF regime, it shuts down a large number of advisers who fail to sufficiently demonstrate compliance with these requirements.

Implementing client management software cannot address all an IFA’s TCF responsibilities but can make it a whole lot easier to gather much of the data that firms will need.

If I were one of the FSA staff carrying out visits under the enhanced strategy, any adviser without such a system to generate the necessary information would make them an obvious target for additional scrutiny.

A wide range of material is available from the small firms’ area on the FSA website at

Much of this can be used by advisers to plan their activity to meet their TCF obligations

Two documents particularly worth noting are the self-assessment tool at

and the culture paper at

The latter includes a number of examples of good and bad practice in the area of culture as well as a management framework for small firms


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