Training and Competence (T&C) has emerged as one of the key issues of mortgage and general insurance (GI) regulation in 2007 – no surprise there, I hear you say. Although there is no direct reference to T&C in the Financial Services Authority’s (FSA) 11 principles for business, having competent, well trained staff is an essential ingredient in upholding many of them.
These include: conducting business with integrity; using due skill, care and diligence, communicating with customers in a way that is clear, fair and not misleading; ‘Treating Customers Fairly’; and ensuring the suitability of advice.
The FSA’s recent quality of advice review makes a specific reference to its February 2006 T&C guide, pointing out that T&C performance among smaller firms was currently poor. Having been given such a strong hint, it might be a good idea for adviser firms to re-visit the T&C guide.
Employee assessment is the first main issue. At the time of recruitment, gaps in skills and knowledge need to be assessed and can be achieved by a variety of methods, including formal testing, one-to-one assessment and role plays. Good practice could include focusing on specific information such as the firm’s particular systems and procedures as well as on the employee’s knowledge of regulated activities and products sold. The methods used must reflect the activities of the firm and have relevance to the employees’ levels of competence.
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T&C plans are the next key topic, which also includes record-keeping. Such plans could include setting out responsibilities, how competence will be assessed and training put in place, arrangements for supervision, Continuous Professional Development (CPD) and record-keeping.
Employees must be competent in the work they do and must have passed the relevant qualifications within the time limits that then prevail. Competence assessment should take account of the employee’s individual technical knowledge and skills and how well they are applied to practical situations, together with their knowledge of changes in the market, products, legislation and regulation.
Next, a system of supervision should be in place that is appropriate to the knowledge and skills level of the firm’s employees. This could be a mix of coaching and role plays, sitting in on employees giving advice to customers, assessment in pre-decided key performance areas, and formal training.
There should also be a regular review of employees’ competence, monitoring the areas of skills, technical knowledge, and awareness of changes in the market, products, legislation and regulation. Good quality CPD could include reading trade press, attending roadshows, reviewing FSA published information; regular file checking; setting and reviewing key performance indicators; and regular tests of skills and knowledge.
It seems that small firms have a lot of ground to make up on T&C in order to fully comply with the FSA’s principles, so making this a focal point might be a very good idea.
Simplifying the review
Q1: I have read in the trade press about the FSA carrying out a ‘retail distribution review’. I’m not sure exactly what this means and how it will impact me as a mortgage and GI broker.
Bill answers: Simply put, it is a complete review of the whole financial services industry driven by the FSA. It was born, as I understand it, out of the belief at the top of the FSA that many of the industry’s practices, especially the way the broker and providers in the industry pay themselves, should be reviewed – the question basically being whether this is giving the consumer a good deal.
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The review has been divided up into chunks, with working parties set up within the FSA and others with external industry ‘chairpersons’ who have substantial experience. The review has been broken down into five segments covering sustainability, professionalism and reputation, incentives, consumer access, and whether the regulations are a barrier. This project could be the biggest thing to hit financial services in 2007.
Exit fee confusion
Q2: The recent report by the FSA into exit fees has left me slightly confused as to what I, as a broker should do. Can you tell me what I should be doing now?
Bill answers: You might want to check your client files to make sure that any of your clients who might be or have been affected by a lender increasing and charging higher exit fees in the way the FSA has described are aware of the situation.
An effective approach
Q3: I have read how importantT&C is to regulated firms, and individuals subject to TC2 especially. In the area of competence, what should an effective approach include?
Bill answers: As a minimum the following points should be in place. Everyone should be aware of the importance of competence, especially following the FSA’s reports on quality of advice. The competence requirements should be clearly defined – everyone impacted should know what is expected and how competence will be assessed. The frequency of competence reviews, plus how the firm will monitor and evidence an individual’s competence should also be clear. ‘Coaching for success’ has to be a basic part of the T&C scheme – supervisors, owners, and compliance team need to be capable of supporting and growing advisers’ level of competence. As the market moves forward, competence must keep up.
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