Understanding requirements

To deal with the FSA requirements means first of all understanding what those requirements are. These are published on their website www.fsa.gov.uk and are easily accessible. They come in the form of source books, codes of business, handbooks and guidance notes. They cover subjects such as high-level standards; prudential standards, business standards, regulatory processes and redress. There are about 30,000 pages of information.

The good news is that the FSA are to reduce the number of rules and regulations by about half. Instead, they are making more emphasis on principle-based regulation. The bad news is that you have to work out what this means to you in practice. To help, you might wish to attend FSA workshops, read speeches, best practice notes, dear CEO letters, references to other material such as the Joint Money Laundering Steering Group, AIFA and other trade body material defining standards or best practice. These will become more important as we move closer to principle-based regulation.

Treating Customers Fairly
This is number one on the list of principle-based regulation and is exercising the minds of the industry. The two main questions are; ‘what is it?’ and ‘how do you measure it?’ To answer the first question, the starting point is to determine what it isn’t. According to the FSA, it isn’t the same as customer satisfaction. In other words, complaint records are not, in themselves, a measure of fairness.

The types of management information required will include:
• Strategy & culture
• Product design
• Financial promotions
• Sales & advice
• Information after the point of sale
• Complaint handling

Now you have the information, you have to gather all the data and report it. But, the question still remains for you to answer – how do you determine fairness and its application to your customers?

Applying the requirements
You need to interpret this information into practical applications for your business with confidence that you are fully meeting those requirements. It helps if you have twenty years of experience dealing with financial services regulators so that you understand the principles and context of the requirements and are able to speak the regulators’ language when dealing with them directly. In other words, you need to know what they mean.

Someone at director or senior management level in your firm needs to take responsibility for risk management, training and competence, complaint handling, financial promotions and anti-money laundering. Of course, if you are a sole trader as well as being managing director, finance director and sales & marketing director you will need to take on all these responsibilities yourself. You cannot pass on regulatory responsibilities to a support service.

Systems and Controls
Next you need the systems and controls in place to make those things happen and prove to the FSA that they have happened. These have to be appropriate to the type of business you operate and proportionate to the size of your business. Whatever that means. It’s your guess.

You will have to keep in mind the requirements to report to the FSA, including the Retail Mediation Activity Report (RMAR). The time commitment is not the completion of the online form itself but the collation of the material. The FSA expects firms to have this readily available because it is important information for managing your business. Completion of this online is straightforward, provided you have collated the information first. This includes numbers and types of products, premiums and amounts of investment. You can buy back-office systems that store this information for you.

Cost of Compliance
One- and two-man firms estimate that it takes on average about 2 days a week for one of them to deal with all the regulatory issues. That’s between 20 and 40 per cent of lost revenue, let alone the direct costs. Firms with more advisers appoint compliance directors to deal with FSA issues. A typical employment cost is about £40 – £60,000 per year*. An alternative is to buy in support services. Generally, providers charge an annual rate for keeping you up to date with information and advice but will charge extra for on-site supervision and compliance audits. They do not take any liability for the outcomes of these checks; the responsibility and liability always stays with you, and you still have to complete the FSA returns and deal with them directly. Support services will not in themselves reduce the firm’s burden, so much as give some kind of assurance that the systems and controls are in place.

Building the business
Now that you have dealt with the FSA, you might wish to maximise your business. One adviser in the firm only has three days a week to do this; the rest is spent on FSA requirements. There are three ways of growing your business income; get more customers, get more out of your customers on each transaction and get your customers to buy your services more often. The first one is a bit of a catch 22; to service more customers means having more time. So, to get more out of your customers and more often means growing your service proposition. You can buy in expert advice to help you do this. The cost of business consultancy is about £1,000 per day.

So, in summary, you have to find ways of increasing your income by up to 50% to deal with FSA requirements whilst maximising your business. Or you can join Burns-Anderson.

* These are full employment cost including salary, employers’ NI, contribution to pension accommodation, travelling expenses etc

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Helping meet FSA requirements

We translate the FSA handbook, principles, rules, guidance, best practice notes, speeches, etc into readily available and easy to follow procedures and standards. We then offer support through training and monitoring to help you achieve and maintain the standards set. Burns-Anderson network members can be confident that they need not worry about compliance with the FSA handbook.

Business development
Further we work with members and providers to bring sales and financial planning ideas to life, supporting the growth of business and providing the tools to write new business. New products and services are created because providers seek new opportunities from regulatory or legislative changes. Burns-Anderson brings the best ideas to your attention and helps them fit with the way you do business. Recent examples are with profit investments, IHT planning under the new taxation rules and pensions simplification.

Good relationships with providers means developing better customer service. Burns-Anderson ensures that service level agreements are in place and kept. Again, this translates in smooth transaction between you and your client, and someone to sort them out for you should standards slip.

Providers aren’t just good for commission. They deliver training and education and business support, so long as you are big enough of course, or part of our network. We have harnessed support for members for services such as

• The development of marketing initiatives and materials white-labelled for your firm
• Profit-modelling – to ensure that you run your business at a profit
• Business consultancy – coaching you to develop your business, complementing the services of our Adviser Development Consultants.

Other value-added services include discounted rates on software used for research, back-office or portals.

Profitability
Providers have their business models based on turnover and the reputation of a qualified group. Better controls result in fewer cancellations and complaints, which means that sales are more profitable for the provider. You, and your clients, benefit from this profit by receiving higher commissions or procuration fees. It’s your choice as to how you use this benefit. Many firms prefer to take smaller initial commission and build up their business value by renewal and trail commission forming a regular and predictable part of their income.

Relationships with product providers and lenders are critical to the success of your business in two ways:
• Maximising commissions and procuration fees and
• Customer Service.

Whether or not you rely on initial commission or prefer trail commission with smaller initial, the most you can get helps both you and your client. Even if you are moving more to a fee-based service, the higher the commission means more reinvestment for your client, which reflects well on you.

Value of your business
This built in value to the business means that you have something to sell at your retirement. To make this easier for you, we will guarantee to buy your business and look after your clients, your way.

Maintaining standards is a long-term investment in the future value of your business. Suitable advice, well documented, minimises potential future problems therefore maximises the value you are building. You will have confidence that your standards have been maintained because of the regular monitoring, training and assessment provided by Burns-Anderson. Our personal training and support will assist you in developing your business, with new services or new markets.

Personal support
We have a team of Adviser Development Consultants based throughout the UK. Their job is to work with you, personally, to help you with your business.

Complaint handling
The past two major areas of complaint, pensions and endowment mortgages, came about through pressure by the press and the government. Whilst the FSA have said they would not apply retrospective standards, can we be sure that they will not bow to pressure? Currently Equity Release, Interest-only mortgages and Mortgage Income Protection Plans are under the spotlight.

Our experts maximise the likelihood of rejection of the complaint, allowing you to continue to focus on your business. Our performance speaks for itself in both the standards that we set and the quality of our complaint investigators with market leading rejection rates, referrals to the FOS, and the rate of decisions where the FOS agrees with our outcome.**

Choice
And this is the nub of why firms join us. They want to maximise their business and minimise both the risk and the time managing that risk. Not all firms operate in the same way. Firms are built around advisers and their clients. We believe that business growth should not be limited by the knowledge or qualifications of the adviser nor by clumsy, over-bearing compliance regimes. That’s why we give you complete choice of how you want to operate; as an independent adviser offering the option of fees, or whole of market or limited range. If there is more than one adviser in your firm, you can have a mixture of these. Likewise, if your qualifications allow, you can advise on investments, pension transfers, long-term care, mortgages, lifetime mortgages, protection and general insurance. If you do not have any particular qualification, our own in-house IFA service can do this for you under a shared fee or commission arrangement and, for general insurance, our partnerships with Uinsure, Caprica Healthcare and others means that you can act as introducer and still receive a healthy commission. This means that you can serve and retain your customer, profitably.

In other words, virtually every aspect of your business that incurs a cost can be minimised and every business opportunity has been maximised by being part of Burns-Anderson.

** Based on anecdotal evidence from FOS and feedback at professional meetings of compliance directors.

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