The FCA are Looking to Catch Bad People (not you)

Compliance defiance

Anyone who has worked with me will know that I don’t like seeing firms getting bogged down in compliance issues. Occasionally I’ve made the odd sensationalist comment in this space, but I assure you I’m not anti-compliance.

However, I am anti buying into every rule and edict put out by regulators. Here’s why:

1. They’re managing to the lowest common denominator in many instances. For a lot of firms I work with in the Financial Planning space, these rules and edicts aren’t aimed directly at them and are not usually major issues.
2. I know half a dozen or more good Financial Planning firms that have been through the full-on FCA desk audit and lived to tell the tale. The story is usually that in about two hours the FCA visitors realise that this is a firm being run along the lines that they want to see more of, and they leave “to go catch bad people”.
3. The laws and regulations you operate under are so complex that no one person will ever understand them completely. So don’t try to know the letter of the law, understand the spirit of the law and you won’t go too far wrong.

A Tale of Two Businesses

Let me outline two approaches to compliance that I see.

Compliance constraints

My first fictitious firm sees compliance as a burden; a way of stopping them writing more business. When asked, they truly believe they are always acting in the client’s best interests, even if the odd conflict of interest is pointed out to them. Compliance for these folks is reduced to a set of rules that everyone must follow.

The result? An ever-growing burden of compliance. Rules piled upon rules, and lots of situations where advisers and support team members are in conflict with each other.

Compliance after clients

My second fictitious firm has one overriding core value that supersedes all others; if in doubt, do what’s best for the client. In the US they’d call it ‘acting as a fiduciary’. In this firm there are still compliance challenges to be negotiated, because they realise they have to comply.

However, the starting and finishing position is, “What’s best for the client?”

So lengthy reports, that clients will neither read or understand although potentially compliant, won’t be produced. You’ll often hear the term “Keep it simple, stupid.”, a 1960s design principle which states designs and/or systems should be as simple as possible, which works great for client communication too. Even smart clients like advice explained simply, so it works all round.

All staff are selected for, trained in, and rewarded for, always putting the client front and centre.

In this type of firm, there are a lot less rules (but not no rules). Good compliance is simply seen as good business. That type of thinking and behaviour is embedded in the firm’s culture, and it comes from the very top.

Which firm do you think has the more effective compliance processes?

It’s Not Easy

Committing to life in the second type of business is not a walk in the park.

It requires a commitment to high ethical standards.

It also requires a compliance person, in-house or outsourced, who is determined not to get bogged down in the minutiae of the rule book. They have the ability to understand both the spirit and the letter of the law, and are happy to work with adviser-owners to find professional, simple and compliant ways of presenting advice to normal people.

Let’s be honest, most of the gumpf produced by Financial Planning firms wouldn’t be understood by the average person.

It requires establishing processes that, whilst industrialising the flow of work, are there to facilitate one goal and one goal only; producing advice that helps clients understand their financial situation and feel ready and able to take actions to improve it.

What’s the culture in your business?

Good business, client-focused work, and compliance, get wedded into the businesses process. Then the business is able to just let work flow through its process, knowing the end result is great for the client, and both profitable and compliant.

However, it’s the culture at the heart of the business that makes all of that possible. Without an absolute commitment to doing what’s best for the client in all situations, rule and processes run away with the show and no one can understand much of what’s produced.

So whenever challenges, conflicts or disagreements arise, and they sometimes do, these moments are looked at as teaching opportunities for the team, or learning opportunities for the business as a whole.

Fight for your clients

In most Financial Planning firms they posses the client-focused culture I’ve described, but have allowed themselves to be railroaded into a rules-based approach.

Don’t do it.

It’s not easy, but you’ve got to continually fight for your clients by keeping things as simple and understandable as possible. Don’t just accept the first edict that comes from your compliance team. Push back, politely but firmly, and insist that a way forward be found that allows clients to understand and act on your advice.

I know it’s difficult. However, it’s part of our job as the leaders of our still emerging profession. Otherwise we’re playing the ‘trust me’ game, and that can only end badly.

Winning your clients trust, by keeping the information you give them clear and simple, is a much better foundation on which to build the work you’ll do for them in the future.

“I know half a dozen Financial Planning firms that have completed a full FCA audit and lived to tell the tale.”