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5 minutes with… Rory Percival

3 April 2018

This issue’s Q&A is with ex-FCA technical specialist, Rory Percival. Rory now runs his own consultancy focussed on professionalism and compliance in the advisory market. We asked him about his views on paraplanners, professionalism, file review and suitability

(Rory is a confirmed speaker at our Exeter and Birmingham Technical Insight Seminars – we also expect him to be joining us for the events from September also – join over 450 paraplanners already registered to attend in 2018 today – limited spaces remain. The events are free for paraplanners and those in that job role, CPD accredited and a great was to network with your peers whether you are a trainee or vastly experienced.) Click here for more info.

You state publicly on your website that you like paraplanners and why? What role do you see paraplanners playing in the market going forward?

I think the paraplanning role is going to become an increasingly important one for financial planning and advice. Historically, it has been seen as both a career in its own right and as a stepping stone to becoming an adviser – and I see that continuing. Firms running graduate schemes, for example, will have their graduates spend time in administration and then in paraplanning, so they learn all aspects of the business before they become financial planners. So in some ways paraplanning is a way to get new and younger blood into the sector.

At the same time, as we have seen, there is a growing demand for paraplanners to solely fulfil that role, because it is being proved more efficient for planners to work with paraplanners than to try to do everything themselves. I think more and more firms are going to realise the value that paraplanners can bring to the business. Paraplanning is sitting at the heart of adviser businesses, to the extent that when I talk with adviser firms, many of them are saying they want more paraplanners than they want more advisers.

What do you see as the three main challenges for the advisory market in the years ahead?

1. Getting new blood into the market, both from an adviser and a paraplanner perspective.

Financial planners are seeing more demand for advice than supply and they want to grow their businesses to help meet that demand. From a paraplanners perspective, there is also the issue of where they are going to get new staff.  Firms are often going to have to train and develop their own new staff which is quite a challenge, especially where the firm is quite small and doesn’t have deep pockets.

2. Regulation. We’re in a hot spot of regulation at the moment, with MiFID II, GDPR and so forth. The challenge for advisory businesses is complying with the new regulations but in a way that doesn’t stifle the operation of the firm. What can happen when new rules come in is that the focus shifts to compliance and they are implemented in a heavy-handed way that can work against the best interests of the client. Effective compliance keeps an eye on the main aim of the advice, which is getting the best outcome for the client.

3. The third challenge I think the market has at the moment, given the relatively benign stock market conditions and the healthy financial state of firms, is not getting too comfortable so that we stop reviewing propositions and processes to ensure they are still relevant to clients. This is particularly so for younger generations of clients, who don’t necessarily respond to the traditional methods of advice, and require new ways of communicating, using technology for example. It’s how you put together the right advice proposition for the different client types and how you do that in the best way possible. The advice process in general remains clunky and non-streamlined, and technology can and will be a solution to that.

In terms of professionalism, on a scale of 1 – 10, where would you put the advisory market at the moment?

I’m going to preface my answer to this by saying that I am generally a tough marker and having worked at the regulator for 10 years and seen all shapes of good and poor in the market, my feeling on this is that the market is a 7 at the moment.

What does it need to do to improve?

I think the professionalism of individuals in the market has improved enormously, primarily but not exclusively as a result of the Retail Distribution Review (RDR) but there is still some way to go. The next big step I see that needs to be taken is to focus on the professionalism of the firm. That is going to be about how to run an efficient and professional business that thinks and operates like a firm and is not a lifestyle firm that has simply grown in staff numbers over the years. That is not to say there aren’t individuals within firms acting in a totally professional way but professionalism needs to be part of the culture of a firm and that really only comes about when a firm is run as a business rather than a lifestyle.

Where do you see paraplanners sitting in terms of improving professionalism in the industry?

One of the things that has always struck me about paraplanners and what I like about them is their passionate interest in planning and professionalism, in order to achieve better planning. This includes their desire to attain qualifications as well as broadening their hard and soft skills sets, as part of challenging and wanting to do things better. Paraplanners set a good example of people wanting to improve as a sector.

I think the work that paraplanners do within firms is going to help improve the professionalism of the market by their attitude towards getting the best outcome for clients.

When reviewing files, where do you see the key mistakes being made?

There are two that stand out like a sore thumb to me. The first is not including enough colour and detail in respect if the client’s objectives. Going through a factfind tick box process without including any further detail is not going to be sufficient. You need to be in a position where a third party can pick up the file and it tells the story of a human being. So that third party needs to be able to understand the person or the couple, what their lifestyle is and what they are looking to achieve. That way you can judge whether the advice is suitable.

Second, is understanding and documenting the client’s capacity for loss. I still think the majority of firms do not meet the rules in this respect. There’s a lot of focus, probably compliance drive, around asking the client what’s their capacity for loss.  This can be a problem.  Sometimes capacity for loss refers to building a capital sum but more often it is about income in retirement. Hence, the pertinent questions are around the level of income needed in retirement to maintain their standard of living. It is then a case of building the plan to support this.

Do you have any tips for paraplanners trying to keep their suitability reports short but who are still required to write tomes?

There are three parts of a suitability report that the FCA sees as mandatory – the client objectives, why the recommendation is suitable, and the possible disadvantages. If you focus the suitability report on telling the final part of the story that the factfind starts about the individual client, then that’s the main issue.

Focus on what needs to be in the report and what can be achieved somewhere else. For example, if a firm has sent the client a letter of engagement, explaining what you are going to do for the client, then there is no need to repeat all that information in the report.

More generic information can be included in appendices, if necessary, although I prefer separate informative guides on key areas that will help to inform the client, such as how investments work, retirement income, defined benefit versus defined contribution, IHT planning, and so on. A client is more likely to read an easily accessible guide than a group of appendices attached to a report.

What Rory Percival thinks about Paraplanners

I like paraplanners. Personally, I have generally found them to be enthusiastic, dedicated and – in a sector that can occasionally be ever so slightly dull – good fun. And a bit nerdy but that’s not a bad thing.

Professionally, I see there are a lot of benefits to paraplanners. Commercially, it makes sense to use a lower cost paraplanner rather than a higher cost adviser. In addition, the quality is often as good or sometimes – particularly in respect of record-keeping – better. Outsourced financial planners can also make a lot of sense for smaller firms where there is not enough work to employ a paraplanner, when firms have particularly busy periods, or to provide an efficient and cost-effective option even for larger firms.

But there is also a potential regulatory benefit as well. Bluntly, paraplanners are generally not subject to the same biases that may apply to some advisers. Paraplanners’ interest is simply trying to find the best planning solution for the client; there are no subconscious leanings towards certain solutions that may be of greater benefit to the advisory firm. Also, they are generally younger and more diverse than the overall adviser community and can provide useful input and challenge to the firm’s approach.

Make the most of paraplanners that you employ or engage!

Professional Paraplanner