Rob Kingsbury spoke to Steve Bailey, director, ATEB. about the compliance consultancy, good compliance practice, tips for FCA visits and the firm’s work for the FCA on Section 166 reviews.
First published in the September 2020 issue of Professional Paraplanner.
RK: What does ATEB do for the financial advice market?
SB: ATEB Consulting is known to the FCA Investment, Wholesale & Specialists Division team. We are regarded as a firm of the upmost integrity; our views are aligned to those of the FCA and this is demonstrated through our work with them. Our primary objective is to give our clients pragmatic support and assistance to help them meet both their business objectives and their regulatory commitments. We believe that this is best achieved through a ‘hands on’ service. We will work on site at firms’ offices at agreed intervals, to implement and test systems and solutions. We act for our clients alone and place our clients’ interests at the centre of our advice. We do not receive any third-party remuneration.
We are not a ‘Report and Run’ business, quite the opposite in fact; we find that having a closer working relationship with our clients works better because if we do the job properly we can prevent (and manage) things rather than ‘patching up’ afterwards.
We examine all tasks that need to be achieved in a 12-month period (file checks only form part of this) and then agree/allocate responsibilities. Once tasks are agreed this is then translated into time (internal and external). We use a comprehensive audit followed by a compliance calendar to document and agree this. The ATEB model is designed to give you an extra member of staff for a very small fraction of the cost of employing someone full or part time. The irony of all this being we often end up committing much more time than agreed, certainly in the early stages.
We emphasise the need for ‘best practice’, sound ‘business processes’ and secure ‘risk management’. If these principles are firmly in place, then compliance should be a by-product. We pride ourselves on our ability to offer plain language guidance and to communicate in a friendly and relaxed manner, making compliance both interesting and enjoyable.
RK: In your view what’s the most essential element of a good compliance process in an advice firm?
SB: Being clear about what you are trying to achieve.
We see too many firms going through the motions repeating and replaying bad practice and bad habits because they believe what they are doing is compliant. There are lots of examples but if you consider a ‘switching process’ there are ways in which rules can be poorly interpreted leading to a significant influx of new business but done so in a contrived manner so as to primarily suit the adviser.
We only need to look at FOS case studies (freely available and there are patterns) and work backwards and what they are clear to point out regarding replacement business is that comparisons should include ALL costs. You may be surprised to hear that some firms choose to include or exclude various costs to create the outcome they desire.
Remember the FCA still talks about outputs so always “begin with the end in mind”.
RK: Is there one primary mistake or omission you see advice firms make in respect of regulation and staying compliant?
SB: This question is simple to answer: Not challenging your compliance consultants (or your compliance consultants not challenging you).
This may be quite a task as often “you don’t know what you don’t know” so I would suggest that you pick up the phone and see if you can get 30 mins or so ex gratia with a couple of alternative firms if you have concerns or suspicions.
Please be certain about one thing however, engaging a compliance firm once per year for a passive audit that is no more than a tick box exercise, cup of coffee and pat on your back is money down the drain and will undoubtedly come back to bite.
Any compliance company worth their salt will challenge you in a respectful and constructive manner and give you an in-depth professional view and something to think about!
RK: What’s one tip you’d give when preparing for an FCA visit?
SB: I’ve lost count of the number of regulator visits ATEB has attended but it must be over 150. So, there are lots of tips but the main one for me personally is ‘Be transparent and anticipate what the regulator will need’.
The FCA personnel are only human (today anyway!) and the more difficult it is to find their answers the more frustrated they will become. If you can anticipate what they need in advance and get them to their ‘destination’ quickly this will normally work to your advantage.
Try to achieve a quick turnaround on pre-visit requests for information and always keep your regulatory and compliance business plan up to date. Maintaining a habitual comprehensive audit trail in your day-to-day activities so that you can showcase consistency and reliability throughout any FCA intervention is essential.
RK: How do firms end up requiring a Section 166 review?
SB: Firstly, just to explain, this is an independent review (completed by a compliance firm of good standing such as ATEB) of a regulated firm, usually focusing on specific issues where the regulator wishes to investigate a firm’s activities. You do not want one because they are time consuming, disruptive, costly and can result in reputational damage. We have completed many of these over the years and continue to do so.
There are many of reasons why firms end up requiring a Section 166 review but often its linked to an increase in earnings and /or involvement in ‘high-risk’ activities. Firms may not be aware but the FCA have huge amounts of MI and are alerted to anomalies. Examples that we have seen over the years include advisory firms caught in a ‘chain’ where they are linked to wider regulatory investigation, such as the SIPP, unregulated introducer, and unregulated investment projects.
Two pieces of advice I have given to firms over the past 22 years are, firstly, do not be ashamed to be ‘Vanilla’ and secondly, if something sounds too good to be true it probably is. As I mention above if someone approaches you with an ‘idea’ or ‘concept’ make sure you research it carefully and seek external council from someone wise. Sadly, the problem may have been repeated many times over by the time ATEB are called in. Going for long periods of time without a real robust challenge can leave a firm with quite a shock.
RK: What advice do you have for paraplanners who want to ensure their work is always compliant with current regulation?
SB: That is a wide-ranging question because there are so many rules to comply with and so priorities are clearly important.
Most people with any common sense will know instinctively if something is wrong, but what to do?
I suggest having access to someone you can ask for a second opinion is important. Ensure that your sales process is well considered, this will be at the heart of any potential non-compliance. Off the top of my head, here are eight essential elements that should be in situ to ensure work remains compliant:
- Full and detailed KYC supporting why something is suitable
- Client segmentation with risk/solution mapping
- PROD work completed
- Clear supporting evidence to show Independence
- Personalised and detailed discounting of alternatives
- Sufficient ‘differentiators’ between solutions
- Robust switching and analysis process
- Removal of conflicts (particularly around ‘favourite’ solutions)
This is not an exhaustive list but if any of these things apply then it is essential to make changes.
RK: What advice would you give to make a paraplanner’s life easier?
SB: My main advice would be to somehow obtain the supernatural ability to ‘read the mind of the adviser’ (I believe Elon Musk is working on this one). For the moment, however, whilst we can’t read minds we should look to improve communication between the adviser and the paraplanner.
I suggest that joint training for advisers and paraplanners leading to greater KYC and a fuller picture of client circumstances is worthwhile. When I originally built www.atebsuitability.co.uk I had in mind the phrase “reasons why”. However, so many suitability outputs today settle for a ‘lazy reasons what’ which are often bland, generic, and repetitive.
Poor KYC can leave the paraplanner with a dilemma that often results in … “if in doubt take it out” and this leads to a poorer weaker output.
So I would recommend a more joined up process where the adviser captures specific reasons for each step of the client journey that can then be ‘inserted’ into the process output and create a ‘glue’ that links the feature to the client circumstances and thus creating a benefit.
A compliance utopia can be brought about by greater personalisation, this will offer the firm and all alike greater protection and ability to sleep at night. For me, it is about doing things right and feeling good about the job and this means getting the basics in place.
