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Should self-employed advice firms use scorecards to comply with FCA rules?

Small advice firms operating a self-employed model could use sales ‘scorecards’ similar to those used by banks to ensure they comply with the FCA’s sales incentive rules, according to compliance experts.

Earlier this week the FCA warned smaller advice firms with self-employed advisers are not taking its rules on sales incentives seriously enough.

In its latest review of sales incentive schemes, the regulator says firms with staff or self-employed advisers whose pay is linked to business volumes are running a significant misselling risk which must be managed effectively.

Separately, the review noted many large firms have replaced existing incentive schemes since the regulator’s last review with a discretionary scheme involving a balanced scorecard where staff are appraised against a range of objectives, including sales. It said these can reduce the level of risk, but must not be inappropriately skewed towards sales.

OAC Actuaries and Consultants senior compliance consultant Conolly Tunnard suggests firms with self-employed advisers use scorecards to monitor sales.

He says: “The card could give a score out of 25 for sales volume, sales quality, product cancellations and complaints, and customer service, leading to an overall score out of 100.

“The quality elements would need to independently reviewed, either by someone else in the firm unconnected to the sale or by a consultant for one-man bands, and would form evidence which could be presented to the regulator if needed.”

Independent financial consultant Richard Hobbs says advisers have an “endemic problem” with sales documentation and a scorecard is, in theory, the right approach to ensuring compliance with the FCA incentive rules.

But he adds: “In practice it is difficult to get this right, as ensuring scorecards are appropriately balanced is challenging.”


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