The Professionals -
A look at what professionalism means for our sector

Trust me I'm an IFA

The subject of professionalism referred to in the Review of Retail Distribution (RDR) raises the issue of competence under the whole regulatory regime. Those familiar with establishing competences will know that these are determined by a mix of knowledge, skills and attitude. The RDR outlines the status of ‘Professional Financial Planner’ as, amongst other things, attaining higher qualifications and complying with codes of conduct. This addresses knowledge and attitude but does not reflect the skills element required of a financial planner.

A ‘good’ sale is where the product is not only right for the client but that the client understands and accepts the reasons for buying it, and the role he/she has to play during its lifetime.

To make this happen means that the ‘right people’ to give advice will have to prove that they have the skills, knowledge and behaviours required according to the type of private clients they serve. Clients have varying levels of understanding but current qualifications do not fully capture the abilities required. Qualifications focus on knowledge. Even the ability to write a case study is pitched at the examiner in the language required by the examiner, not Mrs Average private client. Similarly, on the job assessments are, at worst, focused on FSA requirements only and, at best, subjectively assessed by a colleague who speaks the same language.

Qualifications need to move towards vocational training, where proper communication skills are a requisite, both verbal and written. Elderly people, particularly, need a greater degree of empathy and time to understand them. We cannot teach life experience to the financial adviser and, due to age discrimination rules; we are no longer able to ask for minimum years of experience when recruiting. However, we can teach and measure behaviours; what people say, how they say it, what they do and how they do it.

Our profession, generally, relies on the ‘expert’ approach to advice, ‘Trust me I’m an IFA’. What this misses is that best advice is not just what the adviser believes is appropriate for the client’s circumstances, but also their level of understanding and ability to act on the recommendations. In behavioural terms, the adviser will need to demonstrate that the client’s needs, concerns, attitude and opinions have all been considered and recommendations are made at a proper level of understanding. This means putting themselves in the shoes of the client, matching and mirroring the verbal behaviours of the client and speaking their language

Advisers need to develop their financial counselling skills. This means helping the client find and take ownership of the solution to their financial needs, not simply taking the standpoint of an expert giving expert opinion. Most experienced IFAs have these life skills. The challenge is in introducing these skills as part of trainees’ development programmes and having highly skilled assessors making the judgement.

Adrian Lewis, Head of Marketing, Burns-Anderson PLC

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Reclaiming consumer confidence

The Chartered Insurance Institute’s contribution to the Financial Services Skills Council’s debate on professionalism

The FSA’s retail distribution review discussion paper (RDR) has begun the most significant debate about public policy governing the retail investment intermediary sector for many years and one of the key strands within it is professionalisation and reputation.

It is clear to us all that at present the general public are suffering from a lack of confidence in retail financial services. This was further highlighted by The Chartered Insurance Institute’s (CII) recent survey of MPs in which over a third of those questioned felt that the reputation of financial advisors was “poor” or “very poor”.

The CII, as one of the leading professional bodies in the financial services sector, is committed to addressing this issue head on and that is why, through our thought leadership, we are at the forefront of the debate on professionalism.

Professionalism is not simply about passing exams, important though this is. It is a declaration to the public at large that the advice given by an individual or firm is of the highest quality; is based solely on the needs of the customer; is provided by someone who is not exceeding his or her level of competence; is governed by a code of ethics; and is subject to consistent monitoring, with effective discipline applied to those who transgress.

We are keen to develop solutions to restore confidence in the industry so that we can match the attributes, capabilities and behaviours of the best of other professions. That is why we have recently published a series of position papers, available at www.thepfs.org/positionpapers. These respond to the RDR and propose several specific measures with the goal of improving professionalism and, in turn, increase consumer confidence. Our proposals include:

• the creation of an independent professional standards board with public interest representation
• a single ethical framework for those working in the sector to abide by, set by the professional standards board;
• a clearly defined, universal system of qualifications for financial services;
• entry standards relating to defined functions;
• an accessible and effective complaints mechanism.

We believe that this can lead to an upskilling of our industry and a shift to a culture of greater professionalism that will rebuild confidence and trust with the public.

Daniel Pedley, Public Affairs Manager, Chartered Insurance Institute

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The RDR should be driven by the ultimate advice beneficiary – the consumer. Well, shouldn’t it?

One of the proposals in the RDR is that non whole of market advisers, including tied advisers, could call themselves ‘independent’.  Recent IFAP research, continues to show that most people’s current understanding of the term IFA is that they will be offered and receive whole of market advice from such an adviser.  Subject to the caveats listed in below, IFAP welcomes a debate around what additional criteria might be added to qualify advisers to use the ‘independent’ label.  However, IFAP maintains that to change the meaning away from whole of market risks unnecessarily confusing consumers and that this would be an undesirable outcome.  

The RDR also proposes that consideration should be given to raising the professionalism bar and changing payment methods allowable for those advisers wishing to continue calling themselves ‘independent.’  Whilst IFAP welcomes this debate, a caveat must apply.  There is a risk that consumer access to independent financial advice would become unduly restricted if the professionalism bar is raised to a level that the majority of IFAs find impossible to achieve or if permissible payment methods ignore consumer market force and make the majority of IFA businesses’ uneconomical. 

It should be noted that IFAP’s 17,000 RIs (based at 9,000 branches) now hold between them over 21,000 incremental qualifications / designations above benchmark Cert FP.  Of these, 8,000 are at Level A (‘A’ Level equivalent, broadly QCA Level 3) and 13,000 are at Level B (equivalent to component of Degree, broadly QCA Level 4/5). Of the 600,000 people that are using IFAP each year to find a local IFA, 25% are now specifying they want an IFA holding incremental qualifications / designations as part of their search criteria via IFAP.  IFAP has long contended that because there are so many awarding bodies (between them offering so many qualifications/ designations) – it is confusing consumers and this does not help improve industry reputation. 

For this reason IFAP undertook its incremental qualification / designation project with the FSSC which is now live on all IFAP’s online searches.  This project assessed/graded around 50 qualifications / designations across eight awarding bodies and importantly included legacy qualifications/designations – which, whatever new products the awarding bodies may launch, do not just go away.  Importantly, IFAP facilitated sign-off from all eight awarding bodies to deliver this project.  This simplification has improved the consumer experience and will reduce confusion which will inevitably improve industry reputation.  Incidentally, Consumers attitudes as to how highly they want their IFAs to be qualified are predictable.  Yes, they want them to be better qualified than benchmark.  But this is not the same as saying that to be an IFA you must be ‘Chartered’ or ‘Certified’.  

Of course, added together, these two changes (increased professionalism and restricted payment methods) will have, if applied too restrictively, the potential to cumulatively diminish consumer access to independent financial advice.  IFAP cannot see how overly restricting public access to IFAs would be beneficial to consumers, and again would view such an outcome as undesirable.

David Elms, Chief Executive, IFA Promotions Ltd.

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The Professionalism strand of the Retail Distribution Review

Professionalism, as understood in the solicitors’ profession, comprises two main elements: technical competence and adherence to a code of ethical conduct which requires that the interests of the client come first.

When seeking to apply these criteria to that section of the retail financial services community which aspires to professional status, it is the ethical element which provides the key, and it revolves around the treatment of commission.

The rule book of the Law Society (and its successor the Solicitors’ Regulation Authority, the “SRA”) follows the principle that conflicts of interest may arise if advisers are paid by someone other than their client. It requires that solicitors who receive commission must account for it to their clients – i.e. they must place it in their client account unless it has been quantified and the client has agreed in advance that it should be applied to reduce their fees.  Significantly, the FSA is introducing a similar rule for fee-based advisers, in COBS 6.2.16.

The same principle of independence from outside influence lies behind the SRA’s prohibition against solicitors referring their clients to tied or multi-tied advisers, for whom the temptation to place personal reward over the interests of the client is exacerbated by the fact that the essence of these arrangements is that higher levels of commission are available than to other advisers.

Following these logical principles, the conclusion must be that professionals are independent and agree their remuneration with their clients. But professionalism requires a wider set of principles, and helpfully the FSA has suggested that this might be provided by the adoption of the BSI’s new quality standard ISO 22222.

And what of technical competence? Although a vital element in the make-up of the professional, it is not the exclusive preserve of the professional. Some multi-tied organisations possess high levels of technical expertise. So, how should this requirement be addressed? The established professions again provide the model, in that their members invariably specialise. For example, most solicitors specialising in tax and trusts elect also to become members of the Society of Trust and Estate Practitioners and to gain the qualification of TEP.

It is important to note, however, that the professional unit is the firm, not the individual, and good quality firms are made up of individuals with different and complementary skills. Furthermore, it is the firm whose culture provides the bedrock for the ethical code whose principles pervade all its activities, and it would be unthinkable for a professional culture to co-exist with any other culture in the same organisation.

At the end of the day there are only two categories of financial adviser – those who advise their clients on an agreed remuneration basis; and those who work for one or more product providers on a commission basis. The first category falls instinctively into the classification of professional. But they need no special designation or badge of respectability. They are simply Independent Financial Advisers.

Ian Muirhead, Chief Executive, Society for Independent Financial Advisers

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What does it take to be professional?

The publication of the FSA Retail Distribution Review has raised a number of important questions – particularly for those firms that aspire to “professional” status.

For example, just what does “professional” actually mean? Can it really be judged by exams alone? Further, must it be exclusive to the extent that all but the most financially solvent institutions find it difficult to attain?

In my opinion, the best yardstick for defining the concept of professionalism can be found in the form of Treating Customers Fairly (TCF). Given that TCF is by its very nature, principles based – and judged by the ability of a firm to fully integrate TCF into the fabric of its process and procedures – surely we should take a broad interpretation of what a firm needs to aspire to in order to be categorised as professional?

Professionalism is a function of total engagement with the client – how else can it be judged?

Much of the debate so far has centred round the qualifications that may be required to operate as a “professional financial planner”. I am in favour of higher educational standards but these must sit hand in hand with the behaviours that are required to deal with the complex and involved needs of retail and corporate clients. I do not agree that academic achievement in itself can be viewed as the answer.

The financial planning industry has come a long way in recent years. The quality of advice, supporting research and client engagement has improved considerably. A large proportion of firms have successfully employed technology within their processes and client proposition – creating sustainable business models that are robust and profitable.

Perhaps the real test of professional status is whether the financial planning movement can address some of the longstanding issues that have long been debated. For example, how do we attract suitable new practitioners into the industry and can a clearly defined career path be created?  

 Looking forward, one of the challenges facing the financial planning community, and indeed the regulator also, is that with so many different business models there is no common platform from which to start building. Sadly, it would hardly be controversial to suggest that previous attempts for the industry to speak with a common voice have been unsuccessful.

One of my principal concerns around the RDR is that in attempting to address so many issues there is a real risk that the outcome may result in blurred distinctions, more (unnecessary) terminology and ultimately greater confusion for the consumer. If real change is going to be affected then there must be clarity over the future shape of the industry as a whole rather than fudge borne out of compromise.  

It is important to get across to the consumer that effective financial planning can add considerable value and that those firms which have invested in their infrastructure and research capability are able to deliver advisory services that can rival any other professional service.

John Porteous, Director, BDO Stoy Hayward Investment Management Limited

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What does professionalism mean for the sector?

Perhaps I can start by stating what professionalism is not? It is not solely about qualifications. Nor is it only about a person’s experience. Despite what some people say it is also not about the way a person behaves. Professionalism is in fact about none of these attributes in isolation and everything about the combination of these items.

It is not possible to be a professional unless you hold professional qualifications but these alone do not make you a professional. The lazy will tell us that experience is more important than qualifications, this is simply not true. It is simply an excuse not to have their knowledge tested. The fact that I have been doing this job for 18 years is no more or less important than the fact that I am a Chartered Financial Planner but having that experience makes me a rounded adviser and is therefore of real value to my clients. How I apply my knowledge determines how skilful I am and how valuable I am to my clients.

I suspect that the financial services sector has one last chance to get it right and if anything of importance is to come out of the Retail Distribution Review it will be that we can properly define the role of the intermediary and set challenging but attainable standards that truly prove we are worthy of being called a profession.

Nick Bamford APFS AIFP, Chartered Financial Planner & Joint Managing Director, Informed Choice Ltd.

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What does ‘professional’ mean anyway?

The word “professional” and “professionalism” is one that has been ‘done to death’, particularly in our industry.  Those who work in other sectors such as manufacturing, engineering, retailing and so forth, don’t harp on quite as much about this overused and pretty meaningless word.  Anybody that works for a living, no matter what their vocation, is professional.  A plumber is professional, an electrician and the house painter.  Professionalism or the word professional does not automatically confer either a high standard or competence.  There are many solicitors and accountants as well as doctors and dentists who I have come across both personally and professionally who are quite frankly inept.  The skills needed to give advice in finance, apart from some examinations, involve above all actually having some (finance) yourself.  It is an absolute nonsense to have people advising others on what to do with their money when they have none of their own.  One of the best learning curves is to own the products on which you are advising others and of course to be solvent yourself.  The next valuable attribute is of course experience.  We may be entering into a bear market, but those of us who have been around long enough have experienced them before.  A client with £200,000 isn’t going to be very relaxed taking advice from a spotty youth. 

Exams – it is not all about exams by any means.  I contend it very much depends on the circumstance of the individual adviser.  If that adviser has been in no other industry but financial services or if they are fairly young then exams form a useful part.  If the adviser has had experience in other industries that show he is conversant with money and finance then perhaps exams form a lesser imperative.  Bear in mind that the leading investment banks don’t necessarily pick people with Economics, statistics or finance degrees.  What they want to know is that the person is capable of logical, rational and if possible innovative thought.  This should also apply to financial advisers.  To a great extent it isn’t knowing the answers that is that important, it is knowing which are the right questions to ask.  Answers can always be researched, obtained from a whole host of sources or even may I say plagiarised. 

As far as the FSA’s RDR is concerned, without wishing to give a complete and extensive essay on the subject, I would paraphrase the whole thing in saying that not only will the RDR not be an advantage to the consumer; it will possibly be a distinct disadvantage.  It will not enfranchise and will probably, if it sees the light of day in the form of the consultation paper, add considerable detriment to customers, advisers and the industry in general.  That of course is a personal opinion, but from some of the published feedback from responsible sources, seems to be a fairly general consensus after all the politically correct sentences are moved out of the way. In summary, if I wanted to benefit the consumer as far as the RDR is concerned I wouldn’t start from here.

Harry Katz, Norwest Consultants

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A case for raising the qualifications bar

In an industry as important as the provision of financial advice, most rational people would expect to find stringent qualification standards. The reality, regrettably, is otherwise. The hurdles to becoming a financial adviser are astonishingly low. The relevant examination, the Certificate of Financial Planning, can be attained after relatively little study and absolutely no practical experience.

Having passed this, there is often little inclination or incentive for advisers to attain further qualifications or professional development. The consequence is an industry whose levels of knowledge and professionalism can be woefully inadequate.

We fully support the Retail Distribution Review, and the proposed improvement in qualification benchmarks is a key facet of this; alongside the transition from commission-based product selling to fee-based financial planning and the strengthening of capital adequacy arrangements for advisory firms.  

Much of the ‘traditional’ financial advisory industry is fighting ‘tooth and nail’ to maintain the status quo. An industry that has poorly qualified individuals, who only get paid if they sell products, and then differing amounts depending upon the specific products they sell and the providers they choose, cannot be in the best interests of consumers.

Many advisers in today’s industry do not have the incentive to achieve high qualification standards, let alone convince a client that their advice is actually worth writing out a cheque for.

If the industry wishes to be seen as a profession then it requires professionally qualified individuals, providing a professional service to clients and being paid in direct relation to the service they provide. The industry is a long way short of that.  

Andrew Fisher, Chief Executive, Towry Law

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Treating adviser firms fairly?

It’s not about the name - Independent / Tied / Fee / Commission

Generally I feel that the distribution review that is being carried out by the FSA will benefit the industry as a whole.

The issue that has always left investors and regulators scratching their heads is why the industry is so sales focused and less customer service focused?  The simple truth is that for as long as we have an industry that generates much of its income from the initial sale of a product and very little from the ongoing servicing of that product then we will always have a sales orientated industry. 

There are real logistic problems for a bank or IFA practice which generates as much as 80% of its income from initial sales (example@5%) and nothing for the ongoing management to move to a lower initial and higher ongoing service model. (As an example 1% initial and 1% renewal as in the USA) Such a company would suffer a massive 80% reduction in revenue and loss of its sales focused workforce causing real worry. However the current changing model has been muted for a long time so those that have not positioned themselves correctly only have themselves to blame.

Perhaps a phasing down the maximum commission allowed from 5% down to 1% over the next 5 years is the way forward thus forcing the whole industry to fall in line with those that receive 50% or more of their income annually from their clients as being classed as independent.

How you badge the fee or commission is neither here nor there as long as the client is aware and agrees and has the ability to change adviser or provider without to many issues.

Finally you get to a position (which we have achieved) where 70% of your income is ongoing fees (service based) and 30% from new business (sales based) and the focus is on client retention, improved staff training, client offerings and so on.

We have even set in motion a graduate training programme for new graduates that go through our Accountancy, Tax, Trust, Investment and Compliance departments. We are fortunate to be in such a business with everything under one roof.  After some 18 months we have a graduate ready to begin training to be an IFA with a good broad knowledge. We could not do this without our recurring fee income and the comfort in the knowledge that this is growing.

As time goes on we plan to move to 90% recurring fee income and 10% sales based new business and you finally get to a stage which is totally client service based. This model operates very successfully in the USA.

Finally on the subject of qualifications - I am a Director (shareholding) in a Chartered Accountancy practice with 50 staff and a turnover of some £3 Million. The Institute of Chartered Accountants say that as long as 50% or more of the shareholding board are Chartered then the firm can be called 'Chartered'. I am FPC qualified and have a few AFPC exams in my sights but my passion and focus for 10 years has been to build a really good annual fee earning firm which we have done building up to £600,000 annual fees per annum from nothing. Our clients have no contract and can leave us at any time and know exactly what they get for their money.

It seems ironic that the CII cannot give our financial services firm Chartered Status until I have done a raft of exams even though 3 out of the 5 of us are Chartered Accountants and another Chartered Certified Accountant. Especially when I divert business to those in the firm that are qualified to give the advice (8 Chartered Accountants, 3 Financial Advisers, 6 Chartered Tax advisers etc, 2 Society of Trustee and Estate Practitioners (STEP) with my focus being customer retention and service.

Question- (3 out of the 5 of us are Chartered Accountants and another Chartered Certified Accountant) why can we not be a Chartered firm?

Simon Willcox, Ward Goodman

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The views expressed in this section do not necessarily reflect those of the FSSC. The FSSC does not represent or endorse the accuracy or reliability of any of the information and will accept no liability for any loss or damage incurred through the use of, or reliance upon, information contained

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