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The Retail Distribution Review; heralding a new era of professionalism?

Over the last year in particular, the competence of financial practitioners has been questioned and criticised in a way unthinkable a few years ago. How many of us would have expected our family and friends from outside the sector to be riveted by the proceedings of the Treasury Select Committee as it forced some of the most prominent members of the industry to account for its failures? By the time the Treasury Select Committee issued its report in May, politicians were engulfed in their own crisis of confidence. Noticeably, at the annual SII conference in May, both the Chairman of the Treasury Select Committee, John McFall, MP and the chief executive of the FSA Hector Sants, spoke of the need to improve professionalism in their keynote addresses.

What is a competent professional? If we are designing a job advertisement to pick up on the main aspects of any person specification we would typically cover knowledge, skills and behaviour. For some years SII has regarded the balanced, proportionate weighting of ethical behaviour and continuing professional development (CPD for the maintenance of skills) to be equally important as the knowledge component, acquired and demonstrated through success in examinations. Until recently, although the FSA’s T and C regime has required senior management responsibility to include ensuring the competence of staff, T and C has hitherto been defined in terms only of the knowledge aspect, and measured through the acquisition of examinations. The FSA’s initiative in the retail sector, aimed at financial advisers, and called the Retail Distribution Review is set to change this approach dramatically over the next few years, and it starts to have impact now! It has three strands, two of which are not covered in this article (one focuses on remuneration and one on defining sales and advice to make it easier for the public to understand the key differentials). It is the third strand that is about professionalism. Although this article focuses on the challenge to competence in the part of the sector most associated with SII, the private client investment management sector, the proposals themselves cover every retail adviser including IFAs.

By the time you read this the FSA will have published its consultation paper and through its proposals, defined competence in such a way that it has extremely close synergy with the concept of professionalism. We anticipate that the monitoring of behaviour and CPD will become as much an accepted feature of a financial adviser’s professional life as examinations are now.

The key proposals are to raise the minimum standard of examinations to a higher level, to introduce CPD which will include recommendations on minimum hours and guidance on content. There will be a single code of ethics for the industry and the next stage of the RDR will be the development of a Professional Standards Board to supervise all of this. Many firms and individuals have been generally supportive of the need for change in order to restore trust across the sector, and even though the change will involve real costs for many. In this part of the sector FSA recognises there are already some examples of extremely high standards. Many firms use higher level exams already even though they are not yet mandatory, they have compulsory Continuing Professional Development already and many support active membership of professional bodies like SII where a code of practice is underpinning everything their advisers do.

Nevertheless for firms there will be some key hurdles relating to the forthcoming retail distribution review. Most firms will have to support and invest in higher level examinations for existing advisers as there is no grandfathering provisions under these proposals; all existing advisers, whatever their age and experience and seniority, will have to demonstrate that they possess a relevant higher level examination. There is every indication that firms are already proactively planning for this and providing additional training to assist their staff; SII is also offering complimentary examination revision sessions to help advisers who may not have taken exams for many years. SII has worked hard with FSA to recognise higher level examinations which are not now in use but can be combined with a programme of continuing professional development to meet the new exam standards when they come in towards the end of next year. SII has some existing exams to help advisers now.

Turning to mandatory measurement of continuing professional development (CPD), firms will need to have a scheme to show compliance with this new requirement too, or to use an existing scheme such as the SII's own scheme which is free to members.

Membership of a professional body is probably going to be the cheapest and most effective means of demonstrating compliance with mandatory CPD and the code of ethics and we are hoping that the professional bodies will be accredited by the Professional Standards Board in due course to implement this aspect. However as membership of a professional body is not expected to become compulsory (unlike certain accountancy or actuarial roles) the FSA will in effect become a ‘professional body of last resort’ to monitor and provide services to those advisers who choose not to belong to a professional body. We expect the consultation paper to recommend 35 hours of CPD each year, which is exactly the amount SII recommends.

A further issue for firms is that not all of them appear to recognize that they will have staff coming within scope of this major initiative. For example some firms will have hundreds of existing advisers who need to take and pass higher level examinations by 2012, and the firms also need to have plans to deal with new entrants, because the new examination standards will not be available for a year or so, and existing examinations need to be used and then built on later. Consequently we are working with individuals, firms and also the trade body APCIMS very closely. SII for example offers a dedicated enquiry line on RDR to help firms work out who in their company needs to take higher level exams and we then offer them some options, notably the SII Certificate in Private Client Investment Advice and Management which is well known to many firms and covers the ground in one examination; FSA has stated that any gaps once the new exams are developed can be covered by CPD. The existing benchmark examinations for the industry are at level 3, the new benchmark will be level 4, and the SII’s PCIAM is at level 6. All advisers, even those grandfathered in through the London Stock Exchange, are presumed to have attained level 3, but must now prove they have level 4 going forward, by the end of 2012.Currently we are seeing a great deal of interest both in PCIAM but also, for new advisers, in our SIIMasters in Wealth management which also meets the RDR requirements.

In order to communicate as widely as possible, SII is working closely with the trade body APCIMS ( as the CII for example will be working closely with ABI, and BBA); we have been undertaking a round of road shows which are about to be repeated and SII offers a full day of free events on 14 July for firms and individuals at the London Chamber of Commerce to find our more and even revise for the exam! For the T and C professionals SII has a dedicated conference on 8 July which will explore some issues in depth. The next round of work will involve contributing to the new examination standards and reviewing our own CPD scheme at SII to ensure it conforms with any of the detail that might be proposed by FSA. We are supported at SII by an impressive range of practitioners who volunteer their time to determine the most relevant examination and CPD content for our sector and they will be busy!

SII represents that part of the retail sector which emerged from the London Stock Exchange and where the statement ‘my word is my bond’ was a pre-requisite to practice. The powerful combination of higher level examinations, continuing professional development and a code of ethics which bears close resemblance to SII’s own code is testament to the recognition of what competence is really all about and what professional bodies stand for. The RDR also chimes well with SII’s current application for Chartered status, overwhelmingly supported by our members, not least when so many practitioners see the RDR as a return to core values sorely needed as never before now. SII therefore welcomes the consultation paper and will be continuing to work with firms, other bodies and its members going forward to the next stage of work.

Biography

Ruth MartinRuth Martin joined the SII as Director of Qualifications in 2002 and became Managing Director in 2004. She is responsible for all the main products and services such as qualifications, publishing and membership.

Ruth Martin’s career has focussed on the way in which “best professional practice” can be implemented through education and training.

Ruth's first career was in the UK executive Civil Service at the Department of Employment where she held a range of managerial and policy posts related to the links between employment and training. Prior to joining the SII she was Director of Professional Development at the Market Research Society. At the SII Ruth initiated the development of new markets in India and Middle East, including new qualifications in IT and Islamic Finance. Most recently, qualifications development has focused on higher level qualifications such as the SII Masters in Wealth Management. Ruth is currently involved in preparation associated with the FSA Retail Distribution Review and the submission for SII to have Chartered Status.

She has an MA from the Department of Organisational Psychology, Birkbeck College, University of London, is a Chartered Member of the UK Chartered Management Institute and a Fellow of the UK’s Chartered Institute of Personnel and Development.

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