An over zealous regulator or good business practice?

With the impending change of regulator coming into effect on 01 April 2013 never has it been so important to ensure your business operates within a level of governance appropriate to its risk.

By risk I am referring not only to potential client detriment, but also the personal and business risk involved in running your own business.

Many business owners struggle to come to terms with the level of regulation required to operate in the financial advice profession, but is this due to an over zealous regulator or simply poor business practices?

In my mind it sits somewhere between the two, but a business employing highly qualified financial advisers does not necessarily mean the business is well run.

This issue has become more apparent than ever over recent months as those not prepared to remain in business post RDR have suddenly realised that the business they have worked in and built up for thirty years carries little or no value.

Why, because their businesses existed day to day with no clear vision or exit strategy.

Not only will defining what you want your business to achieve help create a vision of the future it will also help assist with meeting your regulatory requirements.

FSA Principle 3 which features heavily in the Senior Management Arrangements, Systems and Controls (SYSC) section of the FSA Handbook states

‘A firm must take reasonable care to organise and control its affairs responsibly and effectively, with adequate risk management systems’

Many of the Section 166 reviews imposed by the FSA will have come as a result of failing to adhere to the above Principle and it is interesting to note that between 09/10 and 11/12 the FSA requested 63 IFA firms carry out a Section 166 review at an average cost of circa £71,000.

A big price to pay for poor business management!!!

It is therefore very important that you create a strategy for your business and have a clear vision of what you want your business to achieve.

As this plan may take several years to achieve it is then important to cut it down into smaller more manageable chunks.

My view on this is to create short term strategies (say for a 12 month period) that fit into your overall business strategy.

For each 12 month rolling period the following elements should be considered:

• The level of income and capital required
• The number and type of new clients required and how they will be sourced
• The advice areas to be covered
• The resources required to achieve the above i.e. staff / back office / research / compliance etc
• The training and competence requirements of the advisers and other staff and how these will be met
• A robust review process to monitor performance against the plan

This list is by no means exhaustive and businesses should create their own to fit in with their plans; however by creating this list not only have you set out a clear vision of the next 12 months you are also demonstrating to the FSA that you are complying with FSA Principle 3.

I think it is widely accepted that a well managed business carries fewer personal, business and client risks and this is certainly a view adopted by the FSA.

It could therefore be claimed that many of our regulatory requirements could be met by simply running a well managed business; and of course making sure all of the above is clearly documented!!!

Share:

Leave a Reply