By Caroline Gill, Outside The Box Consultancy
As the tax year closes, the collective sigh of relief across the wealth management sector is almost palpable. The deadline for submitting returns has passed, the allowances are used and the files are closed.
It’s at this point in the year that many chief finance officers and accountants find themselves pondering whether they have just about survived compliance requirements by the skin of their teeth, or have managed them in a proactive and strategic way.
The answer is pretty easy to deduce if you can clarify the following: surviving entails a fraught rush to complete templates and tick boxes, while managing is based on a systemic approach that satisfies the regulator and actively informs business strategy.
Based on my experience of working with businesses large and small, I’ve developed a framework for reflecting on the past year which, in turn, can help you shift from a survivor to manager footing. Crucially, it’s not about grading your homework. Rather, it’s about empowering you to improve your processes for next year.
The end of the hunch
In the past, a compliance officer or director could walk into a Board meeting with a gut feeling. Knowing where the risks were, you had a hunch about which advisers were pushing boundaries and where service levels were dipping. But this era is long since gone.
These days, confidence is built on demonstrable evidence. If you feel a specific area of the business is underperforming, you need the root cause analysis to back it up immediately. Regulators want to see proof.
With that in mind, I recommend looking at your Board packs from the last 12 months. Ask whether your management information (MI) drove decisions, or simply reported on history. If your data doesn’t enable you to spot trends like fee inconsistencies or service lags before they become complaints, it’s possible that your MI is too passive.
The danger of the “quiet period”
We are currently in a strange period of regulatory supervision. Unlike the early 1990s, where regular inspection was the norm, or the intense scrutiny of the Retail Distribution Review implementation, we are now in a phase where firms can go long periods without a direct visit from the Financial Conduct Authority.
This can create a dangerous false sense of security. It’s easy to make the mistake of thinking the regulator’s absence means your house is in order. Yet, silence does not equal approval.
However, without external audits or thematic checks, you may be marking your own homework. So, ask yourself, when was the last time a truly independent pair of eyes looked at your files? It’s well worth bringing in a third party as part of a robust culture, which demonstrates to the regulator an active approach to continual improvements.
Planning versus templates
An overreliance on templates can be an unnecessary drain on time and resources, and it is, sadly, a fact of life within many businesses. When Consumer Duty was implemented, the rapid expansion of work led many firms to grab off-the-shelf templates to ensure they were covered.
But there’s a problem with this approach. Filling in a template without understanding the why creates a disconnect, whereby files that look compliant don’t reflect the lived reality of the business. This often leads to the April panic; that is, a rush to make sure the paperwork fits the facts.
As you look at next year’s plan, ask yourself the following question: are we doing this because it’s on a checklist, or because it fits our business model? The most efficient firms are those that design their compliance framework around their specific desirability and client journey, rather than a generic standard.
Finally, I get that there is a huge temptation at the end of the tax year to shift your attention to other areas of work. But the most successful firms are those that take a few days now to review what went wrong.
If you found yourself chasing data at 11pm in March, that is a process failure, not a personnel failure. Fix the process now, and next year you won’t be racked with that niggling thought that you’ve only just survived another year.