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IFA chiefs should not escape FSA ethics message

The recent publication of the ethics and competence paper reminded me of Pete and Dud, that is, Peter Cook and Dudley Moore, who are sadly no longer with us. I prefer to hark back to their days as not as Derek and Clive but in their earlier guise of Pete and Dud. What strikes me most about them was the lack of alignment of ethical values in a particular sketch.

If we accept that ethics is important, then its “cultivation” must be the responsibility of all – not just those who are registered to give advice. I have never understood how the CEOs of some networks and major intermediaries are, for all intents and purposes, unqualified.

The recent paper refers to this but suggests that their controls over new appointments make this a non-issue but what of those already there? I remember having a conversation with a managing director of an IFA, who declared all of his advisers had to be chartered before 2013.

He was not even qualified to FPC level and had no appreciation of the amount of time needed, especially when working full-time, to achieve this level of tested competence. His lack of understanding, I would argue, would present similar prob-lems in the deployment of an ethical policy in his firm.

I also have an issue with ethics exams as I believe it to be a cultural issue instead of one for examination-type recall. Our fellow advisers in the UK are facing the move to being potentially cast as fiduciaries.

Believe it or not, up until this discussion kicked off (post-Madoff), many advisers had no responsibility to their client and could provide recommendations no matter the level of conflict of interest that was in place. Now fiduciary could broadly be defined as a relationship “relating to or based on a trust” and is that not the role we all aspire to with clients in being seen as their trusted adviser.

To do this in a transactional relationship is not easy. In fact, when we consider that “restricted advisers” will still need to show suitability instead of a plea of “but that’s all we have in the way of options”, the post-RDR world reinforces the need to be client-centric at all times.

To appreciate or better still to determine if an adviser is client-centric takes knowledge of what they do and how well they do it. If you fully digested the recent paper from the FSA, it clearly indicated that this places the supervisor in a position central to the development of advisers and leaves the chief executives somewhat isolated. The concept of them being monitors is firmly rejected. They desire the role of coach because it’s not enough for advisers to stand still.

Proactivity in development is essential if the adviser is to build his knowledge and improve his application of same. This requires skills that up to now have been rare in our community, to give this the impetus it needs requires the engagement of the CEOs, yet they are left to one side in the recent FSA paper on ethics and competence.

It is this lack of engagement at chief executive level that leads to a lack of urgency at adviser level. I recall that some years ago an Imro compliance visit to my old firm suggested to my then CEO that I and not he should be setting strategy in my area of expertise. This disenfranchisement of the CEO is not helpful and unless you prefer the communist approach or decision by committees can lead to inertia.

If they remain untested, those in power will take decisions on the basis of expediency instead of taking the client-centric approach, as recent events have confirmed.

The recent article in MM about those seeking to (and succeeding in their aim to) circumvent the Law Society rules on solicitors referring to IFAs only simply underlines that this institutional disregard for ethical behaviour is endemic.

People are seeking to navigate around rules and regulations designed to eliminate bias instead of complying with them. The legal firms taking part need to be brought to book, where they refer to protection or trust advice to avoid detection, and quickly. If any reader knows who they are, now is the time to blow the whistle. If you don’t know how to do this effectively, email me at MM ( ). I will then ensure that this list finds its way to the Law Society to aid their investigation.

For everyone to get the “ethics message”, everyone must be tested, be that CPD or otherwise. But to successfully pass the ethics benchmark, surely those supervising or setting strategy need to be at level four or above? If they remain untested, their deep immersion in the culture that supports ethics in the advice place will never really occur.

But back to Pete and Dud. They once had a hit single entitled, The Piano Teacher”, where Pete had the unrealistic aim of playing like a concert pianist after a couple of lessons. This offends Dud’s integrity and his outburst of indignation results in Pete stating “integrity is a valuable thing and I am willing to pay for it”, calming his tutor’s outrage with his wallet. Ironically, the very thing that clients will seek from us in reality are ethics, integrity. If people have been adequately tested to deliver this, then many will pay for their hire.

Robert Reid is managing director of Syndaxi Chartered Financial Planners


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. Julian Stevens 18th June 2010 at 1:27 pm

    If this argument is to be accepted then, by the same token, all those who regulate and judge (usually by hindsight) the actions of financial advisers and their managers should, without exception, be qualified at least to the same level, if not to a higher level. What chance of that, we wonder?

  2. This argument, if followed, suggests that every airline must be run by a pilot?

  3. Surely everyone in the FSA is fully qualified at the top level of all the qualifications that they insist that we have.

    For example can anyone tell us the qualifications of Mr Sants?

  4. Ethics and intergrity cannot be obtained by passing an exam, and holding a qualification does not gurarantee their delivery. Robert Reid completely misses the point here and makes the assumption that 2 or 3 hours of answering questions creates a lifetime of practice. We need CEO’s and leaders of businesses to have very different skill sets to those working within the business and ethics and intergity are about ongoing practices and not about holding the same qualifications as someone else. As has been commented, Mr O’Leary does not fly planes but he does run the most financially successful airline business in Europe – with the best safety record!! I doubt he is as qualifed as the technicians to service the aircraft! PS not a fan of said airline, but not a fan of such sanctimonious comment either

  5. This is absolutely ludicrous, the best part of a page devoted to a bizarre opinion.

    I know some highly qualified and highly unethical individuals in many professions. Their qualifications did not include a test of their ethics or integrity, even if there was such a test they could simply tell a pack of lies.

    Robert Reid’s argument falls down hard when you ask would you expect the GP Practice manager to be a qualified doctor. Or for the local garage proprietor to be a qualified mechanic. Or the Tesco manager to be an expert in baking bread, butchery, horticulture…

    Robert spends more man hours on column inches in the ‘pinks’ than he should if this is an example of his lack of grasp on reality.

  6. Lots of CEOs with time to write in I see

  7. Tell that to the FSA 18th June 2010 at 2:45 pm

    Generally I agree with Anonymous 2.04pm, and Evan Owen but I might suggest that dear old Hector and his motley crew at the FSA are also incredibly sanctimonious in the approach adopted to demonstrate supreme dominance of our markets.

    I might further suggest this comes from the mistake of empowering people who may be highly intelligent but are nonetheless impersonal ‘geeks’ who then quite naturally become blind bullies in the imposition of theory over common sense.

    If we had someone in charge of the FSA who was prepared to act in the style of Mr O’Leary it would be fine. The pure unadulterated bureaucratic selfishness of senior management at the FSA is just unreal. And just to rub a good dose of salt into this festering wound, the leader of these intellectual twits is being rewarded with position of Deputy Governor for the Bank of England and the first chief executive of the new prudential authority as the FSA is replaced in 2012.… could be so good and yet it is so very very bad indeed.

  8. Paul Standerwick 18th June 2010 at 3:04 pm

    I can’t believe people have time to write articles like this but so few people (except for IFAs) are shouting and screaming about our unqualified regulators

    its a disgrace

  9. You must be joking 18th June 2010 at 3:46 pm

    Firmly agree with Julian and Paul here – how can a regulator regulate with unqualified staff?

    Damn stupid idea!

    Mister Maker – we all know the Unions run (or more acurately don’t run) the airlines 😉

  10. As I understand it Mr Sants is a former investment banker (no pun) and equity analyst with a global investment bank. Given where the major risks exist in the financial world we live in I would think this is as good a place as anywhere to start.

    Not sure possessing the FPC would necessarily provide the skills to oversee the regulation of the financial services industry.

  11. I am 2.04 anonymous and would add that I believed RR was referring to adviser firms where I do not see the need for QCA4 in owners/CEO’s. I would aslo say that in terms of whoever regulates us going forward that yes there are roles within that environment that should carry at least the same level of qualification – but not all. As for 2.28 anonymous, I am not a “CEO” I am just capable of seeing outside of the box and in terms of “time on my hands” by the time you read this, I hope you enjoyed your weekend!

  12. I think it is fair to say that Robert Reid is one of the leading IFA’s in the country and when we look at what he is saying about IFA Chiefs, I can well understand where he is coming from and I have a great deal of sympathy with it.

    I also have sympathy for those people who have commented that the Regulator too should fall into the same category, but that is a side issue for the time being.

    The thing that I really have a problem with is the stupid word “ethics”. To me it’s the county next to Middlesex. How you can test ethics is quite beyond me. To give you a very small example, if I have a client that says they are interested in ethical investments I put them off of the idea. I won’t bother to go into detail but I think that these are not investments and if you want to give to charity that’s a different story. So where does that leave me as far as ethics are concerned? Basically I would say that ethics equals honesty and if you are not honest what are you doing being an approved person?

    Robert however does put his finger on the right issue but I’m afraid doesn’t go far enough. The main difference I think can be encapsulated quite simply, those that are deemed to have this nonsense word are the one’s who put the clients’ interest first. That means that they have to be independent IFA’s and I mean independent in every sense of the word. If you work for another company as an appointed representative you already have a conflict of interest because you have loyalty to the company. Even if you don’t have loyalty to the company the company expects you to turn in a certain level of business otherwise you find yourself with your P60. This is not a criticism of someone who works in a large firm, merely a reasonable statement of fact.

    This conflict of course is something that the regulator is being unrealistic about. The way to combat this is to make sure that you have a disclosure regime that is much more draconian than they have in mind and verbal disclosure of your status is just not satisfactory. What should be required are notices in every bank and non-independent office in foot high writing. “The advice given here is not independent and our first loyalty is to the firm and then to you the client”.

    Again I see where Robert is coming from when he talks about the networks. Those at the head of networks are less concerned with client outcomes than with network balance sheets. Again that’s not a criticism it’s a statement of fact. After 2012 the networks anyway are going to have to reinvent themselves, because hitherto they have relied on being in control of the cash flow. If their members remain independent and charge fees, this control will be severely jeopardised and thereby their income as well. They may well transform into service companies in which case the conflict of interest would disappear.

    I hesitate to say it as far as Robert is concerned but I have a feeling he hasn’t thought it fully through. Examinations, useful as they may be, are in my opinion hardly suitable for something such as honesty and ethics. If you are an employer it is ethical to look after your staff and where possible make sure they prosper. This may sometimes be in conflict with other issues. Having an exam to establish whether you are a ‘good egg’ is in my opinion the height of nonsense.

  13. Harry,

    I never suggested exams for ethics, I cant see how exams can test how people behave. Ethics is all about putting the client first ,its not impossible for even the banks to do this but I admit its not common. There needs to be understanding at all levels why client centricity is good for all parties, I feel that too many at CEO and the Regulator dont understand what we do, you only have to look at the recent comments re FSA and their proposals re tracking transactions which simply underlines that they see everything as product sales they just dont get advice and that concerns me.
    Having watched the debacle of file reviews by unqualified box tickers I feel its essential that those who check us are capable of giving advice and not just fines!

  14. Rob

    With you 100% on all that!

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