Why your paraplanners and investment managers’ assistants should be certified staff under SMCR

4 September 2019

Why your paraplanners and investment managers’ assistants should be Certified staff under SMCR

One of the challenges currently facing wealth management and financial planning businesses is working out which staff should be covered by the annual Certification process. This isn’t as clear-cut as you might think.

We know that the certified population is wider than the individuals who currently appear on the FCA Register as CF30s.

These certified individuals include, for example:

  • Supervisors/managers of current CF30s
  • Individuals holding ‘significant management functions’, such as Heads of departments or business units who aren’t performing prescribed SMF – or Senior Management Function – roles
  • Individuals performing the ‘client dealing’ function.

The client dealing function can be particularly complex in a wealth management or financial planning business. Essentially, staff who are involved in the advice, arranging or investment management process, who need technical skill and judgement to perform their role, should be covered by your T&C scheme, in order to demonstrate their ongoing competence for Certification purposes. With the SM&CR deadline just three months away, making sure this is done effectively is crucial.

What is the client dealing function?

The definition of the client dealing function is found in the FCA’s SYSC sourcebook (from SYSC 28.8.18 through to 22.8.22B). The definition is complex and long-winded but, for our purposes, it covers individuals who either:

  • Perform the regulated activities of advising, arranging or dealing in investments (i.e. current CF30s who are required to hold specified qualifications), or
  • Are dealing with clients or their property in connection with those regulated activities (e.g. they are involved in contacting clients or arranging the transaction)

What staff are exempt from being caught by the client dealing function?

In its recent SM&CR Policy Statement (PS19/20) the FCA confirmed that certain junior staff who, on the face of it, are involved in ‘client dealing’ activities would be exempt from the Certification process:

  • Staff performing purely administrative roles, even if they involve customer contact;
  • Staff who have no scope to choose, decide or reach a judgement on what should be done in a given situation, and whose tasks do not require them to exercise significant technical skill;
  • Staff performing roles that are simple, or largely automated.

The FCA commented in PS19/20 that its definition allows the flexibility for firms to exercise judgement about which roles require Certification.

Where does this leave paraplanners and investment managers’ assistants?

Of course the roles performed by staff with similar job titles can vary a lot between firms. But, based on the tasks that paraplanners and assistant IMs tend to be responsible for in most firms, arguably most of them should be Certified staff. Why? Ask your paraplanners or assistant IMs the following question: ‘Are you purely administrative staff, performing simple tasks that don’t require exercising any discretion, judgement or technical skill?’ ‘Yes’ isn’t a credible answer to this question, and your colleagues carrying out those roles would be justifiably insulted if you were to suggest any such thing.

In our experience, the skill and judgements exercised by paraplanners and IMs’ assistants can have a significant influence on client outcomes, even though they are not the individuals authorised to sign off on any advisory recommendations or discretionary transactions. Indeed, the FCA comments in PS19/20 that paraplanners may be required to exercise judgement on behalf of clients.

Despite this, some firms have convinced themselves that their paraplanners and IMs’ assistants don’t need to be Certified. This is apparently on the grounds that they are not authorised to approve recommendations or discretionary transactions, and that their work is (in theory) overseen and supervised by someone who does have such authority. In my view, while this might be a good argument to explain why they are not currently CF30s, it does not get them off the hook from counting as ‘client dealing’ staff under the Certification regime.

What this means in practice for your paraplanners and IM assistants

The bottom line is that staff who are involved in the advice, arranging or investment management process, and who need technical skill and judgement to perform their role, should be covered by your T&C scheme, in order to demonstrate their ongoing competence for Certification purposes. Among other things, you’ll need to consider how your client file suitability checks can test the quality of the contribution made towards the overall client outcome by any technical staff who are not advisers or investment managers. Depending on how clearly responsibilities are set out in your firm, this may be easier said than done. If you’ve not already worked out how to do this, now would be a good time to sit in a corner with your thinking cap on.

 

 

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