The Model Office Blog

Model Office#RegTech and advice suitability

[fa icon="calendar"] Mar 21, 2017 9:39:20 AM / by Chris Davies

 Model Office’s (MO’s) aim is to ensure compliance is no longer considered as a department or business function but rather a corporate state of mind.

Our 5-year research into professional development across retail investment advice and wealth management firm’s showcases a common theme. It is those firms who denote an ethos for compliance across all business functions and operations rather than employ a tick-box or checklist approach who grow the right organisational climate for a culture of constructive compliance.

We defined constructive compliance in a previous blog as the application of behavioural science onto regulatory obligations through understanding client and internal staff biases and their affect on advice and the running of the business. This means we can then provide saliency in corporate governance, clear presentations for product and service charges, suitability reports and financial or wealth management plans.

This means that KYC, TCF, client best interest will run through the heart of the business through active research and due diligence which the FCA defines as:

the process carried out by the firm to assess (a) the nature of the investment, (b) its risks and benefits and (c) the provider (to establish whether they believe it appropriate to entrust the provider with client assets).” TR 16/1 Assessing suitability: Research and due diligence of products and services

Indeed the regulator’s 2016-17 Business Plan makes clear the importance of cultural compliance and an embedded focus on TCF. This means it is those firms who place client best interests at the heart of their processes who will espouse a true constructive compliance culture. Examples of this could be:

  1. Segmenting clients via behavioural needs not just financial e.g. propensities to purchase certain products or sensitivities to fees
  2. Placing the client's needs ahead of relationships with product providers or platforms
  3. Disclosing charges in cash terms and providing tabled examples for fees

This means careful consideration needs to be given to status quo bias and inertia. Firms can manage this through providing a strategy for challenge to the status quo through:

  • Investment committee’s research and due diligence procedures
  • The quality and clarity of their board’s decision-making process
  • Evidence based practice with well documented organisational and client meetings
  • Rigorously tested ‘enabler’ technology such as attitude to risk and cash flow modelling

MO's 5 keys for Focus, Engagement, Promise, Systems and People are designed to test for such a constructive compliance culture. By providing a digital benchmarking solution MO ensures good outcomes and professional standards are tracked and improved where necessary. This aids self-regulation, professional development and a culture for constructive compliance.

Please click the below icon link to MO's platform and learn more about MO today..

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Topics: Benchmark, compliance, client centric, Financial regulation, Financial business development, fintech, Human resource development, client engagement, regtech, Constructive compliance, Risk management, practice management, FCA, advice, mifid, HMT, suitability

Chris Davies

Written by Chris Davies