Mind the gap 

In my last blog, I spoke about the dangers of a lack of 'joined-upness', especially within the context of the FCA's approach to regulation.  In an ideal world, one would ring the changes in terms of the content of these short articles, but I have been provided with an almost perfect example of the kind of danger that I highlighted in that last piece.

On Wednesday (04/01/17), I received an email from the FCA, alerting me to a potential breach committed by one of our Members, which led to that person being suspended from the panel for one of the more minor building societies.  The email is full of the usual commands ("You must do this/that") and reminds us of our responsibilities under SUP 12.8.  All well and good.

However...

We had already conducted a full investigation into this matter in September 2016, following receipt of a notification from that Lender.  We had reviewed the client files and found no basis for the action taken by the Lender.  We had written to the Lender, requesting further enlightenment, and it had refused to cooperate with us.  We had, accordingly, written to the head of the FCA's 'Mortgages & Mutuals' department, requesting some help to allow ValidPath (as the supervising Network) to do its job properly.  The response we received was somewhat staggering:  the FCA did not see it as its role to intervene in such cases.  Which, when you think about it, almost totally subverts the entire process of regulatory supervision.

And here's the thing:  we were aware of the issue in September 2016, some four months before the FCA sent out its formal demand for action, and we had already dealt with the matter as far as it was possible to deal with it.  The only factor which had prevented us taking the matter any further was the FCA's own unpreparedness to insist that the Lender collaborate with the supervisory process.  This almost perfectly exemplifies the concept of 'Catch 22', and is suggestive of a gap in the fabric of regulation where the chief potential victim is the Adviser.

To be absolutely clear:  there was no evidence on the Member's client file of any compliance or advisory shortcoming.  Furthermore, we were supplied with a thorough and entirely consistent narrative for the case which demonstrated why there had been anomalies in the client's circumstances - anomalies which had been explained to the Lender in question at the time.  And yet, despite this, we have the unilateral suspension from the Lender's mortgage panel, the rigours of the resulting investigation, and now the additional, subsequent communications which must be responded to.  This seems to be the way of things - a profoundly dysfunctional framework, where the key threads do not join up, and where there appears to be little appetite for making them join up.  So, what to do about it?

We suggest the following:

  • Good 'fact-finding' skills are an essential component.  Not just the record of empirical financial data, but the more narrative account of the 'story' behind the case.  Customers' circumstances are often complex, conflicted, ambigous - rather than the nice, neat financial picture so beloved of Lenders' underwriting teams.  Historically, Advisers took a pride in knowing the back-story, but kept that knowledge in their heads - it has to be noted, dated and retained on file;
  • During an advice process (and perhaps most especially in relation to a problematic mortgage application) things change - perhaps as new information becomes available, a disappointing valuation or credit-score - so document your awareness of, and response to, those changes in writing.  When the supervisor comes to view the file, it should tell its own story, without any gaps;
  • The experience of this Member with this Lender indicates that the personnel at the Lender are simply not to be trusted.  It is disappointing to have to note this and take it on board - but once you acknowledge the possibility that the person you are negotiating with may not necessarily be reliable or trustworthy, then the onus really is on you to keep a careful record of those interactions, on the client file.  This is not an example of ValidPath (or anyone else) 'gold-plating' compliance - it's simply commonsense, if you value your own status and position.  At the end of the day, your own professional integrity is the most valuable quality you possess.
ValidPath Members are some of the very best IFAs in the UK.  We have no doubts about the professionalism and integrity of our people - but there will be times when unfortunate, unfair events occur, such as this one with this Lender, and what we need in such circumstances is a careful, well-documented client file.  ValidPathers have all the tools they need for this within Clarity and its advice frameworks.
Kevin Moss, 06/01/2017