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Our regulator is working on the advice market and helping to manage risk in this area.  We recently completed a return for the FCA that focused on how we are dealing with the pandemic and our business and financial resilience.

I am pleased to say this did not pose a problem for us and we are comfortable with our current position with the focus on keeping ‘business as usual’ for our existing clients while keeping our staff safe.

We have extracted the precis of the FCA’s current views from a third-party compliance business’ blog in an email received on Friday 26/06/2020:

In their latest 2020/21 business plan the FCA outlines 5 key areas of concern and risk:

  • there is a good level of operational resilience 
  • understand firms’ financial resilience so that firms can fail in an orderly manner
  • markets can function enabling price formation and orderly trading activity
  • customers are treated fairly
  • customers are aware of the risk of, and protected from, scams

In her speech earlier this month, The FCAs Executive Director of Supervision, Megan Butler outlined the regulators response to COVID19 and expectations for the rest of 2020.

The speech Highlights:

  • In operational terms, advisers and wealth managers responded well to the onset of the coronavirus (Covid-19) crisis.
  • Whilst acting with speed has been the absolute priority, as the industry adapts to the long-term impact of coronavirus, there is a need to transition from the immediate ‘incident response’ towards focusing on longer-term impacts. In her speech to PIMFA’s members, Megan Butler explores the FCA’s priorities and longer-term expectations for the wealth management and advice industry.
  • Key areas of focus for the FCA include operational resilience in light of coronavirus, financial resilience (and within that the preservation of client assets and money) and acting with integrity.
  • On the latter, the FCA has identified some firms which have tried to avoid their liabilities to customers by closing down companies and setting up new ones. These practices are unacceptable, and the FCA will continue to take action against firms conducting such activities.

To ensure that firm’s stay on track with risk management, operational and financial resilience and customer focus, the FCA will be focusing on key outcomes:

  •  Client money and custody assets: They see an increase in clients running to cash, so firms are being encouraged to return finances that will not be invested in the short term and/or if firms are facing wind-down.

P and B IFA response:  At inception of our business we decided not to hold client money to minimise risk to our clients.  This is not an issue for us.

  •  Suitability and advice and discretionary investment decisions are (as always) front and centre of treating customers fairly and in their best interests, but will be scrutinised in particular around firms’ response to the pandemic

P and B IFA response:  Our key focus during the pandemic has been servicing our existing clients.  Our Due Diligence process on investments has been enhanced with additional criteria.  One area of interest is the ESG approach of Fund Managers.  ESG stands for Environmental, Social and (Corporate) Governance.

  •  Acting with integrity when it comes to charging appropriate fees is paramount

P and B IFA response:  The standard ongoing advice fee for UK IFAs is c 0.79% per annum according to our third party compliance consultants, with many IFAs targeting 1% per annum.  We remain competitive against our peers with our ongoing advice fee at 0.50% per annum.

  •  Firms need to continually showcase they have adequate systems and controls to manage Financial crime and market abuse

P and B IFA response:  We remain committed to fighting financial crime.  At our weekly Team Meetings and monthly Board Meetings we discuss risks, scams and blocking financial crime.  We have systems and controls in place to protect our clients and our business.

  •  There is a keen focus on pension transfer activity, with their detailed guidance on advisers providing triage, abridged and defined benefit pension advice.

P and B IFA response:  Due to regulatory and compliance input and escalating Professional Indemnity Insurance costs we have withdrawn from Defined Benefit Pension Transfer Advice.

Finally, there is a focus on the future of regulation, with a move to an outcomes based focus with new regulatory principles covering:

  •  Adaptive shift from ‘regulation and forget’ to iterative and responsive approach
  •  Results and performance driven regulation rather than defining a way, thus providing freedom to choose strategies
  •  Risk weighted approach, shifting to data-driven from one size fits all risk evaluation
  •  Finally, a collaborative strategy which aligns regulators nationally and internationally

It is good to see that our regulator, the FCA, is keeping an eye on advice businesses in the UK during this time of heightened risk.  We have taken appropriate actions to ensure quality ongoing advice is provided to our existing clients at this time and to lower our business costs for the time being.

We understand clients need to be kept up to date and constantly upload new blogs to keep you informed and email clients when appropriate during this pandemic crisis.

Our resilience and business continuity plans have been tested and we have adapted quickly to providing advice on a Covid-19 risk free basis (from a distance).  We will continue to monitor and try to improve our resilience and business continuity plans.

We are not sure how long this will last; it could be a while yet.  Personally, I am really looking forward to normal ‘business as usual’ when I can see my clients again!

Take care of yourselves.

Steve Speed