If we take a fairly simplified definition of each of these terms, compliance is about adherence to and implementation of written rules, ethics is a theory or a system of moral values and culture is all about what a company does when there are no written rules.

    So although there are significant differences between the three terms, and quite often a lot of conflicts, it is quite interesting how some companies will pick one to follow and believe they’re doing all three right. This may not quite be true.

    Although being compliant is, of course, vital, it is important to understand that it is the culture and ethics of your firm that protects its value and protects your relationships with your clients.

    The real test of culture is what people do when things go wrong. Anybody can appear brilliant at providing a service when it all goes right, but it’s how you treat clients or customers, or how they feel like they’ve been treated, when things go wrong that really tests the culture and system of a business.

    It's sad but true that – over 28 years after the advent of regulation - a lot of people still play to the compliance referee. Many of us have encountered advice from another firm that was compliant but cr**, I mean bad. Compliance can set a standard but it cannot on its own solve the problem of poor culture in a firm.

    Compliance cannot make unethical actions ethical. If you have to ask the question ‘ Do the rules allow…? Or ‘ where does it say I can’t’ when you’re trying to do something, I’d say you’ve probably already crossed the line.

    However, we need to be careful about not doing the wrong thing for the right reasons. For example, it’s 5pm on Friday, you’re the last person in the office and you get a call from a friend who works for a fund group. He tells you their property fund will be suspended at the point of close of trade today in 30 minutes. There’d be at least 20-30% knocked off the value of the fund and you have quite a lot of clients’ assets in it. What do you do?

    If you’re a client-centric company do you put your clients first? Is it tempting to just switch the clients to cash, and worry about the consequences later?

    The right thing to do on lots of levels is to say: ‘Thank you for the call, this call never happened. Please do not inform me of this stuff ever again, this call never happened.’ But it’s not easy.

    And what if it’s not you in the office? What if it happened to one of your younger junior advisers? How confident are you on Monday morning that you aren’t going to be greeted with ‘Hey boss, I did a really good thing!’

    You can make the decision but does everyone in the organisation know to do the same thing, are they on the same page as you? How embedded is your idea of doing the ‘right thing’? That is the challenge we have within real businesses.

    Ethical behaviour must be a part of the culture of the firm, and not a compliance add on. I repeat, culture is what do you do when there are no written rules, the default option that everyone in the firm goes to.

    So strong leadership is a vital part of setting and maintaining this culture. Ethical cultures are created top down – people can say ‘we are ethical, but just use borrowed software’. There is a real possibility of a conflict that can be dangerous.

    How to create internal challenges

    Although it is great to have everyone singing from the same hymn sheet and acting as a firm, not just a collection of individuals, the FCA is concerned over ‘group think’ and how lack of challenge can lead to poor outcomes. Who is challenging the group mentality? Where is the challenge coming from in small firms? Who is – appropriately -challenging the owners and managers in a small firm? The reality is that most small firms are adviser support mechanisms. They are founded by people who are really good at doing ‘the job’ and everyone else is supporting them doing ‘the job’. That works really well but it naturally creates the issue of who is going to challenge the owner/founder?

    Part of your leadership is to create the internal challenges yourself.

    A change in the structure of the investment committees could help. In most firms the same people who are on the board are also on the investment committee which means there’s no external challenges. Could you get a paraplanner chairing it instead? Could you get a fund manager coming in every six months to talk about other things they’re seeing elsewhere? You have to think about how to get other challengers into your firm to offer other insight and perspectives so you don’t just have ‘group think’.

    Having new – staff or external - members on an expanded boards or shadow boards could also be a useful way of grooming people for your succession plan. I talk to many firms that say they don’t have leadership below board level. Is an expanded board or even a ‘shadow’ board the start of a succession plan?

    One adviser I spoke to had a client base full of ex-company directors who have sold out and are bored mindless – so what he did was get a couple of them to spend time with him every six months, buy them a nice lunch and get some of their experience. Apart from the valuable input, he found it was very profitable because they became real advocates of the business.

    Outside consultancies can be extremely useful, compliance consultancies in particular can be a good resource, but the challenge is, if you’re paying them, will they challenge you? And are you paying them to challenge you? If you’re paying them just to file check, or paying them to say ‘it’s compliant but you’re making life difficult’ are they really challenging you?

    Why do clients remain clients? They don’t do it for the compliance manuals, fund performances, websites, reason why letters or the golf days.

    It’s about how you make your clients feel. The experience of being a client and it’s ultimately about mutual trust.

    A client centric culture is really about the delivery of a firm’s underlying ethics and vision. Your firm’s culture and ethics is how you protect the value of your business.

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