View more on these topics

Revealed: Where Financial Ltd went wrong on adviser recruitment

The FCA’s final notice to Financial Ltd reveals a catalogue of failings relating to the recruitment and supervision of advisers.

The regulator has today banned Financial Ltd and Investments Ltd from recruiting new ARs and individual advisers for four and a half months after identifying “systemic weaknesses” in the networks’ systems and controls.

Were it not for the firms’ financial position, the FCA would have imposed a £12.6m fine on Financial Ltd and a £621,583 on Investments Ltd.

The regulator says the network did not take sufficient steps to assess prospective ARs’ business models and practices to determine whether they were suitable.

Financial Ltd did not routinely carry out any structured due diligence or risk assessment before recruiting ARs.

It also hired advisers without requesting a copy of their CV or assessing their knowledge and skills through a structured interview process.

The FCA says this meant that, upon joining the network, ARs were allowed to follow their own sales processes and use their own tools, including fact finds and risk profile questionnaires, which Financial Ltd had not assessed and deemed fit for purpose.

Once advisers joined the network, Financial Ltd failed to carry out a suitable assessment of their knowledge and skills to determine their competence before they began advising customers.

In addition, the network failed to ensure its advisers were appropriately and effectively supervised.

Supervisory staff were not given sufficient training, and the frequency of supervision was not driven by the actual risk an adviser posed to customers.

For example, the results of pre-sale checking did not influence advisers’ risk rating and post-sale file checks did not have sufficient weighting, meaning advisers could have poor results but not be rated as high risk.

The regulator found that file checking was not consistent and the network’s grading system for post-sale file checks was not effective, largely because there was no clear definition of unsuitable advice.

Financial Ltd also failed to implement effective processes to enable senior management to identify and manage risks. The FCA says management information provided to the board was too high level to enable it to consider direct risks to consumers.

The firm’s board and senior management team also focused on dealing with issues that had already materialised rather than proactively identifying and monitoring ongoing risks.


News and expert analysis straight to your inbox

Sign up


There are 6 comments at the moment, we would love to hear your opinion too.

  1. “The firm’s board and senior management team also focused on dealing with issues that had already materialised rather than proactively identifying and monitoring ongoing risks.”

    Ah, the old crystal ball failed again did it?

  2. “The firm’s board and senior management team also focused on dealing with issues that had already materialised rather than proactively identifying and monitoring ongoing risks.”

    Pan calling kettle ?

  3. Do as I say, not as I do.

  4. What’s the point of a network if it doesn’t supply tools, fact finds and risk profile questionnaires? How can you possibly monitor a multiplicity of behaviours without any consistency or focus? It’s amazing what you come across at a network; this is really scary.

    I recall one guy whose new business register was written in chalk on a blackboard, which when full up he simply wiped it clean! So we’re going to provide past business PI cover – I don’t think so! Any reasonable firm must do basic checks and be satisfied they fit the network model – assuming there is one. Sounds like a short ban on recruitment and no fine is a result!

  5. Anthony, the Financial model & approach has always been that it is not ‘one size fits all’ but that a multiplicity of approaches, tools etc. permits each firm to operate in the way best suited to its client needs. Financial do make all these available but do not mandate their use. A phrase used elsewhere is, they treat their ARs like grown-ups. Nothing scary at all, really. Wouldn’t everyone like to run their business in the way they see best for their client’s rather than have something imposed on them based on the lowest common denominator ?

    Taking your approach to its logical conclusion, the FCA should mandate to every firm the back office software, the research tools, the risk profiling tools, loo-roll etc. as there is actually only one ‘right way’ for everyone to be doing it. Lets see how we would like that !

    The FCA notice actually does not criticise at all what Financial are trying to, just how they had set themselves up to monitor it (i.e. after the event rather than before the event). The ban, one assumes, provides sufficient time in the FCA’s eyes for Financial to complete the implementation of the new processes, which is already largely complete I think you’ll find. They should then have the best process out in the market place on the basis of ‘been there/done that’.

  6. We're all doomed!!!!! 11th August 2014 at 10:28 am

    Yes Simon, it is perfectly acceptable for a Network to treat their ARs as “grown-up’s” by allowing them to use processes and tools to suit their own business. What the regulator does not like is if the Network does not have the systems and controls in place to monitor this. From what has been published about Financial, it would suggest that these systems and controls have not been as strong as the regulator would like. This is not dissimilar from the reason why Honister was not able to effect PI cover, and subsequently failed.

    So, as an example, if I were to use DT’s Dynamic Planner, which gave me one risk profile, and another firm used Capita’s Modeller, which suggested a different risk profile, there could be different outcomes for the same client via different ARs of the same authorised firm. The role of a Network is, in part, to “sign off” use of tools, so if Financial Ltd were not doing this, then they should expect trouble from the regulator….and their PI insurer.

    Time to look around for a different Network, or look at becoming Directly Authorised maybe?

Leave a comment