CATS director Mel Holman outlines some key areas for paraplanners to focus on in an ever changing regulatory landscape.
Talking to many firms round the country, we see a range of approaches to the advice process, and our role is to ensure they remain compliant to the industry’s legislation and regulation.
For this article, I felt it might be helpful to point out some of the areas where we see firms need help and where paraplanners could find it useful to focus their attention.
One of the areas we are having paraplanners look at is ceding schemes, in particular when pension switching, focusing on whether the existing plan can meet the client’s objectives. Key points are whether a fund switch is suitable, and does the client need flexibility at that point in time.
We are challenging firms to really look at the existing product and whether a switch into another plan or into the firm’s central retirement proposition is truly in the client’s best interests.
With the Consumer Duty cross cutting rule about client objectives, we’re banging the drum about using the client’s own words and thinking about why the client has really come to you for advice. For example, we see consolidation stated as an objective, but it is a solution to a potential objective not an objective in itself.
We’re also concentrating on and highlighting SMART objectives. Paraplanners need work on the art and skill of pulling through the SMART objectives from the fact find and the meeting notes and recordings. If they can get that into their mind so it becomes second nature, it will help make the client’s file more robust.
Retirement Income Review
The FCA’s Retirement Income Review highlighted a few areas for attention. One of which was best practice of having a documented retirement income proposition. Some paraplanners are involved in writing those documents, in particular this is an area where outsourced paraplanning companies are helping firms.
Documenting client understanding is another area where firms are still not quite sure if they’ve got it right – have they done enough, do they need to do more?
Cashflow modelling is an important area we are involved in at the moment. Paraplanners need to make sure they are familiar with the FCA guidance. Are they using real returns; are they properly looking at assumptions, what’s the rationale and are they documented; are the growth rates aligned to the client’s attitude to risk; and importantly, is everyone in the firm using the same process, so there is consistency across all clients?
Artificial Intelligence
More and more firms are using AI, from what we are seeing this is mainly for note taking, recording client meetings, and writing summary notes and action points. Some firms are using it very effectively, but many are in the process of trialling AI software to see how it will work for them. There’s no doubt this is the next step change in how advisers work, but it’s how firms use it as a tool, which is important. Whether it is trusted to deliver the right data, and how much human oversight is needed in the process, to ensure the advice given is suitable.
In its recent guidance document on AI, the FCA said quite specifically that they embrace and encourage use of AI, but the firm is responsible for the advice they give the client and for the communications that they provide to the client.
There is no doubt that as AI is introduced by more firms, the market will start to look very different, very quickly. Firms need to ensure they understand how the available tools can fit with their business and that they are using them compliantly within the regulations.
