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Professional Development For UK Advisors - Whose Responsibility For SPS Statements?

Chris Kaye

co-comply

11 June 2013

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 - 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 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 , 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.