How advisers should deal with the upcoming regulatory requirements.

    The recent announcement that the senior managers’ regime is to be extended to cover advice firms during 2018 is a further step by the regulator in promoting effective corporate governance (Financial Conduct Authority (FCA) paper PS16/6). This means the responsibility for ensuring that senior managers and others are up to the mark shifts from the regulator to the firm. Consequently firms must certify most of the customer-facing people in the business thereby extending direct regulatory responsibilities to staff not previously requiring approval from the FCA. The regulator refers to “holding individuals to account when they fail to meet our standards” which indicates a clear intent to make this initiative work.

    Previous experience shows that regulatory initiatives that influence how firms behave and operate often turn out to be applications of good business practice. Treating customers fairly, adviser charging and many of the governance requirements are examples of this. This is likely to be the case for this new set of responsibilities and business owners should welcome it. Most principals would want to take responsibility for what their people do, how effective they are and what action to take if things go wrong. Passing this responsibility back to businesses seems an entirely sensible action to take.

    There is plenty of research demonstrating that firms that pay attention to roles, responsibilities and the effective development of people tend to be more successful. If people are motivated, enthusiastic and feel valued the business will be more competitive and profitable. There is a clear link between this good practice and the processes and management activity required to support the senior management regime.

    To deal with the new requirements roles and responsibilities must be allocated to people who are competent to carry them out and accountable for their performance. As always there are no short cuts: job descriptions, performance reviews, structured training and development and effective reward schemes are essential. These should be combined with the framework of responsibilities currently operated by the regulator. Both of these strands provide the start and firms that have taken them seriously should see no great barriers or costs involved in satisfying the new requirements. However, if the basic people management practices are not in place there is a lot to do.

    For senior management the best approach is to identify all the accountabilities carried by the team and then allocate them according to capability and capacity. It may well be that the “controlled functions” are already effectively allocated which provides a starting point to review and possibly update current practice. This is likely to cover much of what the regulator requires but by blending these with other responsibilities there is an opportunity for them to be seen as part of “business as usual” as opposed to a regulatory “add-on” that is considered a burden instead of a key activity. The same approach applies to the other client facing roles in the business.

    The next step is to ensure there is a robust process for job descriptions, performance management, professional development and recruitment. This is summarised in the following chart.


    As the chart shows the job descriptions must be exactly right. These are the basis for all the development and remuneration actions that follow as well as reducing the risk of poor recruitment decisions. A concise “one side of A4” job description should be the aim which includes:

    • a clear purpose for the role – one sentence
    • no more than 10 key accountabilities – the basis for performance review
    • the skills and knowledge required for the job – to help recruitment decisions and personal development
    • person specification – to help fit the right personality and attitudes to the job.

    There are plenty of examples, templates and frameworks in the market for designing jobs and straight forward approaches to reviewing and enhancing performance. This does not have to be a bureaucracy but it will be essential to show evidence of process and outcomes to the regulator. The new regime can be accommodated within this model thereby providing both a regulatory and business benefit.

    Most firms will need a start-up project to make sure the correct job descriptions and other people processes are in place. In addition, the allocation of roles and responsibilities must be undertaken thoroughly. For some firms this will be building on good practice, for others it will be more extensive and external support may be needed. This investment of time at outset will make the ongoing operation straight forward and part of the day-to-day running of the business. If this can be achieved then the “good business practice” benefits of this initiative will emerge which should more than cover the cost and time of the initial work.

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