CHALLENGE

  • Our client; a large life, investments and pension provider, engaged Huntswood as a strategic partner for their new advisory and investment management joint venture: a “new to market” restricted advice partnership.
  • We were tasked with developing a full suite of compliance services that supported, enabled and empowered a new restricted advice proposition.
  • During our engagement, we conducted regulatory due diligence on 10 prospective member firms to ensure that they were ready to join the proposition and were an appropriate cultural fit for the client. This focused on ensuring their compliance with regulatory requirements on key aspects such as suitability, training and competence, and complaints.
  • The client wanted the due diligence to be carried out in a friendly but robust manner with a view to creating long lasting relationships, with mitigated regulatory risk.
  • There were a large number of project stakeholders to consider, including a new fund manager, a technology partner and prospective member firms.

ACTION

  • The client identified and shared a list of prospective member firms, with financial due diligence having already been conducted prior to the client sharing the list.
  • During the initial communication with each firm we requested a range of information including sales data, management information, policies and processes. This information was reviewed prior to visiting each of the firms.
  • Two of our regulatory consultants spent time with each proposed member firm and completed the following actions:
    • Interviewed the owners, directors and senior managers from each of the firms and probed areas such as their business model, and the governance, culture and control in place
    • Interviewed more junior members of staff in order to test how the direction from senior management was translated to them
    • Tested all staff members’ knowledge of the policies, processes and management information we had previously reviewed
    • Conducted a risk-based sample of file reviews to assess the suitability of advice
  • We then prepared a regulatory due diligence report detailing whether the prospective member firm was an appropriate fit (from a conduct risk, cultural and capability point of view) to join the partnership.

RESULT

  • The report and our recommendations were presented to the client and the prospective member firm simultaneously. From our engagement, our client was able to launch a new proposition.
  • Seven of the firms we visited were in good shape and the advice testing and interviews returned positive results. We had recommended that these firms were accepted into the proposition.
  • Two firms were required to undertake some remedial action before being accepted into the proposition; this was largely linked to the suitability of advice.
  • One of the firms was not an appropriate fit for our client’s proposition. From our review of this firm, we found poor advice and documentation standards, inadequate systems and controls and a poor culture.
  • The relationships we built with the nine successful member firms set the tone for collaborative open dialogue when the proposition started and we commenced providing the full suite of compliance services to the proposition member firms.