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Professional perspective

The McDonald report on training and competence in the financial services industry was published by the Securities and Investments Board in May 1990. The report was accepted by the board shortly after that and the process of implementation began after that. It took four years altogether.

In 1992, the board established the training and competence panel, chaired by Len Warwick to consider the detailed implementation of the report and to work with each of the self-regulatory organisations and recognised professional bodies to ensure that their training and competence requirements would meet the standards for approval by the SIB board.

Its work was completed in 1994, followed by the detailed rules on training and competence being issued by each SRO and RPB and the requirements for on-the-job training and assessment, which the panel required. Each new entrant had to pass a minimum competence test, provided by the Chartered Insurance Institute, the Securities Institute and others and then to engage in continuous professional development, organised by the firm.

My report and the SIB board did allow grandfathering. Fimbra and Lautro rejected grandfathering and the panel allowed them to be super-equivalent. Other SROs and RPBs did allow it but, in the end, the initial competence test became a requirement for all.
Its significance began the process of raising standards in the industry, a process which is still under way and still resisted in some quarters by those who do not understand that increasing professionalism is the only way forward for IFAs in particular.

I now think that allowing grandfathering was a mistake. My reason for that is that we now all have a much better understanding of risk. One of the most obvious risks that a firm faces is that its employees lack the relevant knowledge and competences.

For all those involved in giving advice or guidance to the public, having well qualified and competent staff is vital. That applies to bank and insurance staff as well, where if they do not understand the line between guidance and advice, they could give advice instead and then the banks and insurance companies would be liable for compensation if that advice proved to be negligent and wrong.

That is why I welcome the publication of the feedback report with its commitment to raising the entry level and its rejection of grandfathering.

Some argue that passing an examination does not make an individual an adviser. They are right. Unless the initial examination can demonstrate that the individual has grasped the concepts involved and can apply them to the needs and aspirations of the client in front of them, then the study required for the examination and achieving the qualification itself will be a waste of time. But that has been clear from the very beginning in the McDonald report, when the role of the examination was to test the candidate’s knowledge and the application of that knowledge.

It also has to be recognised that a higher-level qualification is required because the world has changed since the early 1990s.
The Government expects people to save more and make a greater contribution to their pensions, to the further education of their children and to provide themselves with appropriate protections but has created a complex environment for them to do so with its array on pension credit, child trusts and tax relief. Investment products have themselves become more comp-licated and the choice much wider.
Advising or even offering guidance is more demanding and it will and does require higher levels of ability and a range of skills for the job to be done well.

In the testing times that lie ahead, people will turn to those in whose advice they can have confidence and who can explain both the risks and the rewards of saving and investing.

Other skills are even more important than they were before. More research may be required so the advice given is relevant to the client. That can be tested in an examination – asking candidates where they look for information and how they would go about selecting what is relevant for the client.

What is much more difficult to assess is how that information is communicated to the client and that cannot be done in the context of a formal examination. The latter does have its part to play in comm- unication, since effective comm-unication requires a thorough understanding of the subject.

If the financial adviser finds it impossible to communicate effectively with clients, then he or she cannot be regarded as being properly qualified. Such skills will be especially important for those guiding sales.

In such cases, staff will find it difficult not to stray into giving advice, all too often in a desire to be helpful to their customers. Conveying clearly to the customer that one is merely guiding them in their choices will be a difficult message to convey.

The problem then arises with testing communication skills. If that is to become part of the process of qualifying as a financial adviser, then a suitably objective and cost-effective means of assessment will have to be found. At the moment this often takes the form of a supervisor being present in the room when the salesperson or adviser is dealing with the client.

Typical problems here are that the member of staff has an eye to the supervisor’s response to what is said rather than to the client, in other words, the interview is falsified to some extent. The assessment itself is inevitably subjective. This is an issue which must be addressed if the adviser or salesperson is going to be assessed for the range of knowledge and skills involved in their role.

The FSA is to be commended on seeking to raise the minimum professional standard and a minimum qualification of QCA level 4 is a good step forward. I have long advocated the need to raise the minimum level and now that the FSA has taken this step and has the support of most people in the industry, it is important that it comes to fruition as soon as possible.

When, as a result of my original report, I saw the wide range of examinations offered with different titles and purposes, the alphabet soup of qualifications, I wanted a common title, as with university bachelor degrees, and common standards.

The FSA proposes to establish a professional standards board, initially as a sub-committee of the FSA board but with the aim of developing it into a fully independent board with a chair and a majority of directors who are independent of the industry and of any of the professional or skills bodies.

If, in the longer term, this became a fully independent professional body, setting professional standards, then this could at last mean that financial advisers become professionals. They are needed as such in a world where saving and investing are ever more challenging for individuals, but only if they can indeed provide a professional service.

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