Last month I mentioned the four key findings from the Financial Services Authority’s recent report on quality of advice processes in mortgage firms. Over the next few months, I intend to analyse each in detail.
This month I want to explore the key findings around the quality of mortgage advisers and training & competence arrangements. It may seem an obvious statement to say good advice starts with a good adviser, but this is the message being sent by the FSA.
The FSA’s training and competence rules have applied to mortgage advisers since the FSA regulation of mortgage advice commenced in October 2004, and while some firms and advisers have good arrangements to meet the requirements, others have yet to embed systems into their business. The FSA issued a T&C guide in February 2006 to assist mortgage firms in raising standards, and this can be found on its website in the small mortgage firms area.
T&C remains in the forefront of the FSA’s thinking, demonstrated by the publication of Consultation Paper 07/4 The Training & Competence Sourcebook Review in February 2007. In this consultation, the FSA sets out proposals to simplify the T&C requirements, as part of its move towards more principles-based regulation and less reliance on detailed rules. The proposals, while simplifying some of the T&C requirements, will not represent a lowering of competence standards expected of firms. In particular, a more principles-based approach will mean a greater responsibility on firms’ senior management to demonstrate why they consider their T&C arrangements meet the required standards.
My view is, whether looking at the issue under detailed rules or broader principles, a sound approach to T&C should include a T&C scheme or plan – this should set out your firm’s approach to assessing and maintaining the competence of advisers, and include comment on each of the following points:
– Qualifications – a key component of an adviser’s competence, and important enough for the FSA to propose retaining specific requirements in this area in the consultation paper.
– Continuing professional development – this is an appropriate inclusion, but good CPD should be a mix of activities that improve advisers’ knowledge and capabilities. Attendance at seminars and industry events such as roadshows is a good CPD activity, providing input from diverse sources and contributing new thinking.
– Training support – are advisers expected to seek out their own training opportunities, or will your firm conduct more structured development, such as presentations at adviser meetings?
– Allocated supervisor – record who the supervisor is for each adviser so there is a clear record of spans of control.
– Individual assessment – rather than a blanket approach to T&C for all advisers in the firm, consider reviewing each adviser’s skills, knowledge and development needs on an individual basis. You may choose to check a higher proportion of cases for new or less experienced advisers, then scale back if a good standard of advice is being maintained.
– File checks – these should be more than just a chronology check, and there should be a focus on the quality of advice. This can be difficult to define, but is based on identifying circumstances, needs, affordability and making recommendations that suit the clientlObserved interviews and one-to-one meetings – to ensure high standards are maintained it is a good idea to observe advisers in action, and feed back to them on their performance with both positive comments on things done well, plus action planning to improve on development areas.
– Record keeping – to demonstrate your activity on T&C, comprehensive records should be retained. It is possible in these days of thematic reviews you will be asked to provide your records for FSA inspection.