The title may well lead you to thinking that this guy isn’t too tightly wrapped and perhaps a couple of sandwiches short of a picnic, but there is method in the madness. Honestly.
Most of you good folk out there will receive regular bulletins from various publications virtually every day (almost hourly if you subscribe to a few) and lately there have been a number of headline grabbers, such as: FCA bans adviser over ‘negligent’ pension advice, FCA fines adviser for ‘dishonest pension advice’, or, FCA bans and fines two British Steel advisers.
You’ll have seen this sort of thing numerous times and these articles are often clickbait for keyboard warriors, but they are generally driven in the first instance by the issuance of FCA Final Notices, which can be found within the Publications section of the FCA website. Journalists don’t need to look that far for some juicy material!
We’re not saying that Final Notices are going to reach the top of the Sunday Times Best Sellers List anytime soon, but if you really want some insight into what causes things to go wrong in advice firms, they provide some excellent pointers.
The failings identified by the regulator in many of these instances are remarkably similar and one such notice that we frequently cite as a good example (because it hit all the wrong buttons) was issued by the FSA on 27 January 2010. Since then the same findings have appeared with alarming regularity in subsequent notices, but despite this, these issues keep cropping up time and again.
The firm in question had been paid a visit by the FSA and part of this involved the checking of 19 advice files – the regulator frequently draws its conclusions from a relatively small sample, especially where trends are identified.
The commentary noted that: ‘In 17 of the 19 files reviewed, there was insufficient personal and financial information on the customer file and/or incomplete or non-existent fact finds to demonstrate the suitability of the recommendation’. Sound familiar?
It goes on to say: Our findings are supported by a review of the firm’s core business areas conducted by its external compliance consultants. The consultants used a traffic light rating system to assess the adequacy of each core business area, with “red” defined as being the most serious requiring urgent attention. This included a review of the firm’s selling practices, which were rated “red”.
In relation to advice suitability, the regulator highlighted that: The firm failed to demonstrate that it had obtained sufficient personal and financial information about its customers to assess the suitability of its recommendations to enter into investment and insurance contracts. In only three cases were the customer’s objectives clearly and fully identified.
To make matters worse
The firm failed to implement an adequate process for reviewing the competence, knowledge, skills, training and ongoing performance monitoring of staff. As a result there was no proper system for reviewing and assessing the quality of advice being given by the firm’s advisers. For example, there was no evidence of any formal assessment of the ongoing competence of the advisers and quality of advice checks being carried out. This core business area was also categorised as “red” by the firm’s external compliance consultants.
As a result of the above, the firm was unable to evidence suitability of advice, which in turn led to the firm ‘not having adequate and appropriate systems and controls, compliance arrangements and risk management systems over its business’. As the core product/service of most advisory firms is advice, this was pretty damning.
The firm was subsequently fined and agreed to appoint an external compliance consultant to conduct a risk-based phased past business review of products sold over a two year period, and to compensate any customers who may have suffered loss. Ouch!
There have been several notable cases of late, mostly involving British Steel DB transfer advice, where the FCA has imposed some very significant fines, but these have also been accompanied not only by the individuals concerned being banned from advising and holding senior positions in firms, but some pretty strong rhetoric too, with words like, ‘incompetent, ‘dishonest’, acting without due skill, care and diligence being used. The language being used by the FCA appears to be a definite shift in stance, with no lack of emphasis in its commentary.
The level of fines imposed has also increased markedly, with some eye watering penalties being levied (ever wondered how much was generated gross prior to this ‘misconduct’ being identified?), so anyone under the impression that individuals won’t be taken to task under SM&CR may be wise to have a rethink.
These more recent Final Notices relate to advice imparted since the pension freedoms were introduced, so it’s probable that there will be more to follow for DB transfer advice, but as we’ve mentioned several times previously, the FCA is at a fairly advanced stage in its thematic review of Retirement Income Advice, so the findings from this may well see more firms and individuals taken to task.
It’s not all grim of course, there are some really good firms out there and we deal with many of them, but there are also a lot that may have a problem if their business standards aren’t what they should be.
Final Notices provide a meaningful insight into where problems lurk and where the FCA has taken action, so if any of the findings from these strike a chord in your firm it may be time to make some changes. Doing the same thing and expecting a different outcome really is madness.