The big frightening regulatory issue of 2008 has to be treating customers fairly (TCF).
The thing is if you ask many IFAs what this actually means in practice they can’t really tell you. If you ask the compliance consultants, they will tell you to implement a big unwieldy plan (as well as money laundering plans, compliance plans, business continuity plans and all the other business plans they tell you to do), but the reality is that these TCF plans are a sledgehammer to crack a nut and TCF shouldn’t be anything more than good business practice.
I personally think you can satisfy most of the FSA requirements on TCF by ensuring all your normal systems and controls are relevant to your business, are regularly reviewed and you demonstrate clearly that you always act when your monitoring highlights any problems. But of course this does mean putting the effort in on a daily basis to make sure it’s all working as it should be.
Although this should cover most of TCF, one big area I do think that IFAs may trip up on is where passive renewal and trail commission is being received. Most IFAs will have a sizeable percentage of their renewal and trail commission coming in year after year in respect of clients with whom they do not have an active relationship. This income is usually used to pay for the overheads of the business.
To ensure TCF, the firm receiving this money is going to have to tell the client what it is that they are going to do for this money. This means reviewing every client on your database, working out what income you get from them and deciding what services to offer (and in some cases telling clients you no longer wish to have them as clients). What service will the IFA offer to the other clients? Will it be a Gold, Silver and Bronze service based on the recurring revenue received? If a service is offered to some clients based on revenue will the firm be able to deliver to their promises?
I know that for many IFAs including my own firm, Bradbury Hamilton, this is a big task, especially where you have large numbers of clients. The problem with regard to commission tracking we have found at Bradbury Hamilton is that it has really not been commercially viable to track all renewal and trail commission.
To get round this problem we have changed our back office system to Intelliflo which will allow us to track and reconcile this electronically and hopefully by the December 2008 deadline we will have spoken to all our clients. If you combine all this with an economic showdown, 2008 will undoubtedly be a challenging year for all of us!
Sheriar Bradbury is managing director at Bradbury Hamilton
The views expressed in this blog are the individual's own.
Lowest level since 2016
Subset of fintech
Just one-fifth not in favour
Armed forces charity
PI providers adding constraints to cover