The implications of regulatory change for the wealth management industry may be far-reaching and could redefine the industry, with many smaller firms struggling to deliver from a limited resource base. Larger firms have the diversity of product and scale to spread compliance costs, but the squeeze is definitely being felt lower down the size scale. We have already seen consolidation taking place at all levels of the market both through mergers and acquisitions and through specialisation in niche products or market segments.


The pressure on small and medium-sized firms to invest in compliance is driven firstly by the need to meet regulatory requirements and thus avoid costly fines and secondly by the need to develop brand reliability and reputation. From the wealth management firm’s perspective the key to this is to take control – and just as importantly be seen to take control – of client and transaction prospecting and wealth manager competency development. Sound client-related policy and practice transacted by highly professional, competent and knowledgeable Relationship Managers will pay dividends and could further justify the costs of compliance by gaining competitive advantage. Ticking the boxes and letting staff scrape through with the minimum required standards will not!

Many firms seem to be congratulating themselves that all their staff have reached threshold competence qualification level 4 or higher and are now logging the requisite CPD hours with the relevant accredited bodies. In due course the SPS’s will be issued and everyone will be happy. That accreditation, however, is only the starting point. Qualifications, training, CPD, policy and process – these are all inputs – and obviously very necessary ones. But everything the FCA has communicated since its inception points to a declared focus onoutputs – on conduct and compliant market, product, advice and client behaviours.

Every firm must first define its own set of standards and benchmarks in terms of Competence, Performance and Conduct. They must be clear what ‘good looks like’ and then drill that standard down through the business through policy and process, training and development and the general development of cultural attitudes.

These standards must then be embedded through effective performance management with clear expectations, objectives and competencies for every advisor – in every area of their role.

Assessment is then the critical next step. The weary annual appraisal is not enough. Daily or weekly assessments against KPI’s, with clear benchmarks in all of these areas, is the requirement. Where shortfalls occur – whether they are concerned with falling behind with CPD or not completing transaction suitability forms – these must be identified immediately and dealt with.

Neil Herbert
Neil Herbert

Finally, rewards must be linked to overall performance against benchmarks in all three areas with strong weightings toward compliant behaviours and conduct. Only then can a firm feel that it is truly managing outputs as well as inputs. All of this represents considerable investment in time and costs.

Getting the biggest return from their investment must be the goal of all firms who want to rise to the challenge. In particular, effective technology and process–based decisions and investments could separate the men from the boys. The most effective technology solutions will be those that manage on-going benchmarking and assessment of competence, conduct and performance. Where shortfalls occur they should be recorded and remedial actions tracked. Audit trails are all important when the FCA do come to call. If your compliance system logs and manages CPD as well then better still – although we are all aware of the accredited bodies’ direct logging systems and their pros and cons.

Oversight is critical and access to the relevant records for the relevant people is a must. Although prudent investment in the right technology will pay dividends in the end, this is only part of the picture. The most successful firms will be those that minimise the regulatory impact on service levels through hiring and retaining top talent, invest strategically in areas including training and technology, and embed a culture of compliance within all levels of the organisation. Therein lie the greatest challenges and possibly the greatest costs of true compliance.

Neil Herbert, Director, HRComply