This week’s guest blog is from Mark Dennison, Managing Director of The Compliance Department. TCD is a boutique compliance consultancy that gets the concept of financial planning both from a business and regulatory perspective.  Having said that, they work for firms across the model spectrum.

Mark Dennison – United Kingdom

Mark featured in an article in January 2015 called Getting On The Front Foot With Compliance. His comments cut right to the heart of the benefits of running a financial planning model and generated a lot of comment from readers. As a result, I invited him to elaborate a little on that concept, which he has been kind enough to do. The piece is brief and straight to the point, but contains valuable advice.

All too often, the debate surrounding a financial planning model (or some other type of advisory model) gets stuck in the mud as one side or the other gets hung up on the minutiae. What I really like about Mark’s piece is that it focuses on the regulatory risk that is removed from your business by adopting a financial planning approach. Add that to the buzz you get from really making a difference to your clients lives and it’s a pretty compelling argument.

I believe that de-risking your business adds tangible value to owners and advisers in the following ways:

Reducing the stress and fear that can accompany a ‘loose’ approach to compliance

Almost all advisers I know are concerned to some degree with the possibility of an FCA visit.

Improving profitability

In my experience firms that manage compliance well are more profitable. That doesn’t mean they’re over the top on compliance (quite the opposite); it means they’ve embedded the right model and business processes to support it. Once that’s done, compliance rarely gets a mention.

Improving the ease with which a firm can be sold

Just like buying a used car from a person who can provide a complete log book and full service history gives you confidence, so does buying a business that has a brilliant approach to compliance. This can really speed up the transaction process at sale time.

Increasing the price at which a firm can be sold

And it goes without saying that a buyer will pay more for a firm with a great compliance history and a strong approach to the whole compliance issue.

But enough from me.

Here are Mark’s thoughts on the importance of de-risking your regulatory operation.

Six Regulatory Presents

If you haven’t already adopted a financial planning model, here are six regulatory presents that come your way when you do.  For the purposes of this article, the concept of financial planning presumes it includes a cash flow modelling process.

Present 1: Data collection

In order to run cash flows, you have to capture good data for a client’s assets, liabilities, income and expenditure. These are the jewels in the regulatory risk crown.

Present 2: Up-to-date data

To maintain your cash flows, the data needs be refreshed annually. Another big regulatory tick, especially with RDR where it is so important to be able to demonstrate the link between your terms of business and what is being delivered on the ground.

Present 3: Cash flows and risk profiling

With cash flows, it is easy to ascertain any required investment growth rates. This determines the required risk a client should take on. In one easy step (OK, maybe two), the biggest claims risk the typical investment oriented adviser will encounter is managed and evidenced.

Present 4:  Managing client objectives

Back to cash flows. Behind the cash flow is all the hard work that goes into identifying a client’s objectives. And the beauty of the cash flow is that all objectives are (of necessity) converted to financial objectives – just what the regulator requires.

Present 5: Demonstrating the client journey

Arguably, there are five areas to financial planning (income including retirement, tax, event, inter-generational and insurance). The financial planning process requires a demonstration to the client that those areas are monitored, controlled and implemented. This is a huge comfort to clients and is also good for regulation, in that it helps to again demonstrate the link to engagement and delivery of services.

Present 6: Good governance demonstrated

Documenting the implementation and controls around Presents 1 through 5 gives huge regulatory cache to the owners/executive of the business in the eyes of the regulator.

So there you have it. Six priceless presents to de-risk your regulatory operation. And the wrapper (if you will excuse the play on words) –  the financial planning model.

De-risking your business adds tangible value to owners and advisers .