The Model Office Blog

Benchmarking regulatory papers and good outcomes

[fa icon="calendar"] Feb 16, 2017 1:03:09 PM / by Chris Davies

 Benchmarking professional development within the retail financial service industry means calibrating the FCA directives within Model Office’s (MOs) algorithm. In our blog FCA project Innovate, regulatory resources and RegTech development we detailed some of the FCA papers that MO’s algorithm assesses and incorporates into the regulatory and business development benchmarking.

Further to this it’s probably useful to understand some of the excellent resources the FCA provides that can facilitate good outcomes for firms ongoing compliance and development journey:




TR 15/12 Wealth Manager firms & Private banks

DFM/Advisory portfolios

3rd party services (compliance)

-1/3rd fell short -1/3rd make improvements

-1/3rd OK

150 Client files:

-23% high risk unsuitability

-37% unclear

-41% low risk of unsuitability

*Improved 79% -59% unsuitability risk





-Clear organisational structures defined/consistent/transparent lines responsibility-effective processes to ID manage monitor & report risks

-Policies/procedures ensure firm/managers/employees-ARs/tied agents comply

-Client centric culture/best interests

Oversight arrangements

-Front line control mechanisms ID/reduce risks to clients

-Monitor/manage risk

-SMR across biz models/service offerings/client acquisition/delivery channels/objectives & legacies

NB Good/Bad practice


Assessing suitability:

Assess product & service research & due diligence

-Inconsistent good practice across products/services

-Culture imp to R&DD success

-Challenge process in-built nb status quo bias/conflict interest favours product over client needs

-R&DD needs robust SYSC e.g. file reviews assess recommendations not tick box

-CIPs/platforms need suitability process

-2nd MiFID II based on ESMAs technical advice: requirements in relation to research on products

FG 12/16 Replacement Business and Centralised Investment Propositions-CIPs

More focus on robust processes and controls when recommending replacing existing investment i.e.:

·       Costs of investment

·       Justify any improved performance prospects

·       Suitability re tax implications and client’s specific objectives

·       Collate information on existing investments and demonstrate reason they are not fit for purpose

·       Client best interests first re the sales process, controls to mitigate risk, MI quality

·       Due diligence on CIP re client needs and objectives, no retro fitting, robust risk ID and control system

Replacement biz:

-Consider objectively their clients’ needs and objectives;

-Collect necessary information on their clients’ existing investments and the recommended new investments, such as the product features, tax status, costs and the performance of the underlying investments; and implement a robust risk-management system to mitigate the risk of unsuitable advice and poor client outcomes


Principle 6 – A firm must pay due regard to the interests of its customers and treat them fairly;

Principle 9 – A firm must take reasonable care to ensure the suitability of its advice and discretionary decisions for any customer who is entitled to rely upon its judgment;

COBS 2.1.1 – A firm must act honestly, fairly and professionally in accordance with the best interests of its clients; and

COBS 9 – ‘Suitability’


-a preferred fund panel for transactional clients

- a suite of low-cost managed funds for clients with modest asset levels who required a low-cost ongoing service;

- a model portfolio service for clients with a higher level of assets and investment experience, where the additional costs were appropriate; and

- discretionary fund management for clients who required bespoke investment management solution


Retail Investment Advice: Adviser Charging & services

Disclosure services

-Use word restricted 7% failed explain meaning/9% failed disclose nature on-going services (20% in 13/5)

Disclosure AC

-15% using % based fail provide e.g’s (24%) 18% fail e.g. on-going charges (30%)

13% fail provide total charge (22%)

9% fail show charges in cash terms (24%)

Costs on-going services: 34% fail disclose in cash terms (41%)

Hourly rates: 57% no info on length service   (73%)

Wide ranges: 23% not specific on charges i.e. between £x to £y

Clients require clear understanding of levels charges and nature of services on offer to make informed decisions

FCA will intervene

Enforcement/Crime Division

Review FCA resources

Format AC/Service Disclosure

-Documents: Bold text-Font size legible i.e. not mistaken for T&Cs

-Info AC/service displayed together so can assess in context

-Avoid dense text/complicated information i.e. tables/diagrams good

-White space avoid cramming

-4 pages or less

-MI: captures no clients using services assess distribution clients across services stops retro-fitting into CIP


Distribution retail investments: No personal recommendations/

simplified advice

No personal recommendation: ID type clients suitable =good

Model design to support decision-making i.e. product range/information/SYSC good outcomes

-Unsure on regulatory framework = exclude info/tools


-Simplified advice=Barriers – suitability/risks from delivering e.g. auto advice = mis-selling through unintended or unsuitable recommendation /uncertainty on liabilities


Contingent charging model based on advice received prior to purchase could lead to client XO elsewhere


FOS risk on complaints


Pre-post sale increased compliance oversight = more costs

Personal recommendation:

-Service design: ID tgt mkt/ client types/demographics (age/wealth/knowledge, invest experience, objectives) & good outcomes

Use results for service design i.e. products, marketing, content/info, SYSC monitor MI & outcomes

-Invest proposition: compatible with client character/objectives/needs

Limited product range accordingly

R&DD across products/platform

Marketing strategy: ID tgt client profiles assess risks, channels

Client interface: Client capabilities/information supply support decisions

Pre-post sale surveys/testing/web analytics

Disclosure of service: clear, fair, not misleading – brand = consistent message

Support decision making: Information/interactive tools/client compare & assess products on criteria

Mobile tech: Reg requirements i.e. disclosure of info & mitigate poor outcomes

Controls: SYSC manage service risks – monitor outcomes good/bad, quality MI = specific metrics tailored to risks selling without personal recs (invest amount, products, client profile, cancellations, persistency, invest switching, contact/complaints data)

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Topics: Benchmark, compliance, client centric, Financial regulation, Financial business development, fintech, Human resource development, client engagement, regtech, Risk management, Soft compliance, practice management, FCA, Roboadvice, Finovate, FCA papers

Chris Davies

Written by Chris Davies

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