Under the RDR, client-facing individuals are now required to obtain a statement of professional standing (SPS) - effectively a practicing certificate - from an accredited body as evidence that they are meeting the standards. This article asks who is responsible for SPS in practice.

Editor's note: This article, by Chris Kaye, the chief executive of co-comply, a compliance specialist firm, is an example of the detail that needs to be understood as the UK financial advisor industry seeks to cope with the effects of the Retail Distribution Review reform programme. The issues raised here are likely to be relevant not just to UK-based advisors, however, given how reforms in one country are often copied and studied overseas. This publication is seeking to step up its coverage of the finer details of how to put wealth management compliance into practice and welcomes specialists to get in touch with any comments. 

In March of this year, the then Financial Services Authority
reported an approximate 13 per cent drop in the number of newly-defined retail
investment advisors since the summer of 2012. Clearly one has to assume that a
significant proportion of that drop is as a result of the Retail Distribution
Review.

Under the RDR, client-facing individuals are now required to
obtain a statement of professional standing (SPS) - effectively a practicing
certificate - from an accredited body as evidence that they are meeting the
standards. The employer must ensure that the required structured and
unstructured CPD – continuing professional development -  is completed annually and that relevant
Statements of Professional Standing are issued. The latter are issued by the
relevant professional body – such as the CISI. The question is, where does ultimate
responsibility rest for ensuring that the SPS is based upon genuine
information? Is it the employee, the employer or even the accreditation body?

The employee

Many firms now appear to rely on individual advisers
maintaining CPD or training and competence (T&C) privately through their
relevant professional body. This is a high-risk strategy for such firms to
adopt. The problem for wealth managers and other retail firms is that the SPS
certificate is not just a responsibility for employees. If the employer relies
solely on the employee to self-attest that they hold a valid SPS and that
employee subsequently provides poor financial advice, and in the investigation
it emerges that the SPS was invalid, then who is liable? Is it the wealth manager
for failing to operate robust CPD controls?

The employer

In reality, all CPD should be monitored and verified by a
supervisor - but who is the “supervisor”? Even within the firm, it is not
always clear which department should be accountable for the SPS. Is it
management, compliance or human resources? From my experience, most wealth
managers need help with reducing the silos between the compliance, risk and HR
departments. Should the head of the sales channel in the firm be culpable? Or
does accountability reside outside the firm altogether, resting with the
accreditation bodies?

The accreditation
body

It is often the choice of the advisor as to which
professional body they use, further exacerbating the problem. Although the firm
is provided with details of the training and accreditation that their employees
attain, they have to go to multiple training bodies to gather this data. Should
firms be allowed to select the accreditation body that they wish their
employees to belong to? Such a policy would direct all new employees to use
that body (with perhaps a six or twelve-month grace period for new starters to
switch accreditation body), thus enabling the compliance team to receive a
single report. Would that not make the management of accreditation far easier
for wealth management firms? In the area of account dealing, most advisers are
forced to use just one or two brokers - should the area of accreditation be
treated any differently?

What would happen if the accreditation body issued the
statement and accredited an individual on the basis of the information
supplied, but that information turned out to be false? The usual process is
that an advisor logs into the accreditation system and inputs their data on the
training that they have received. Where it is structured training, the training
body would force the adviser to use its own courses: however, 30 per cent of
CPD is currently unstructured. How does the accreditation body verify that
training – such as attendance at an industry seminar? If the accreditation body
does not provide adequate checks to ensure that this unstructured training has
taken place and issues the SPS, would the training body be liable if the advisor
is then sued for providing unsuitable advice?

Looking ahead

Wealth managers should consider carefully their position in
terms of compliance with training and competence regulations. All too often it
takes a major breach before firms review where responsibility rests for the
veracity of their SPS statements.

Additionally, broader T&C should be managed and
maintained as part of a wider compliance and performance assessment monitoring
process which also needs to involve the employee’s manager - how much
visibility do they have of the employee’s T&C records? This process should
be managed and supervised internally and firms should have robust controls to
ensure that they track advisor SPS renewal dates.

Thankfully, automation will steadily improve this situation
across the industry. For example, workflows within wealth management firms can
now be substantially enhanced, bringing together disparate processes such as
Approved Persons registrations and SPS renewals. Single views of all
information can be provided to the relevant personnel and email alerts can be
automatically generated to all persons.

In the future, HR teams will have more access to compliance
software applications and will be set up on the same system with common
workflows. Perhaps in some firms the responsibility for employee T&C will
ultimately be merged, as the demarcation between compliance and human resources
becomes increasingly blurred.