Conduct risk in wealth management: why technology is part of the answer


Drawing solely from his firm’s experience, Gary Linieres of the software firm of Wealth Dynamix, which was sponsoring the event, said that only 25% of wealth management firms had conducted serious conduct risk assessments and only 15% had actually evolved an IT-related strategy to address the issues. Moreover, 88% had told the firm that this regulatory change was not justified and almost 80% were finding the extra workload of dealing with these regulations difficult or very difficult.

As a result, according to figures from Compeer that the chairman, Bruce Weatherill, quoted, 75% of wealth managers are planning to increase the budgets of their compliance departments in the next 12-18 months, with 44% seeing it as an opportunity to introduce positive strategic change. This formed the backdrop to the morning’s discussions. Michael Bennett, the chief operations officer at Charles Stanley, spoke on the subject of demonstrating suitability, saying: “Our first relationship manager (RM) has just completed his full book last week – the champagne’s going ’round!”

Emily Morris, Acanthus Consulting mentions, “Conduct risk is about getting the client at the heart of the business model. The marketing is very much designed to deliver that profitably. In principle these things should be very much aligned. A lot of the wealth management market has been sales-led for the last few decades rather than marketing-led, but this is changing. Conduct risk and marketing cultures need clients to be well understood and for that understanding to permeate the whole business and I think technology plays an important part in doing that.

On the basis that we have to collect far more data than we used to, I don’t think it takes too much to push out the boat a little further than that and use a lot of their systems and processes that are used for conduct risk for effective product governance and suitability. To actually lose all that, to actually re-engage with clients and really understand their needs, very much with an eye to attention on being thorough because at the end of the day client retention is the life-blood of all these businesses.”

Gary Linieres looked back at the inception of his firm in early 2013: “Clients have been seen as the RMs’ intellectual property rather than part of the actual firm themselves and I think we saw the regulations that the Financial Conduct Authority was coming out with around conduct risk and suitability as something of a real game-changer in terms of CRM [customer relationship management] solutions. Client relationship data is a fundamental part of everything that conduct risk is about.”

Bruce Weatherill, Chairman of Clearview Publishing mentions, “How do wealth managers prove to clients and regulators that they are not just complying with the rules, but providing better customer service when it comes to conducting risk? By way of explanation, Vanita Ramtri, the head of conduct risk at Barclays Wealth, persuaded a delegate to walk out of the room and walk back in again. Her explanation for this amused the audience.

I guess you all know the answer. How do you actually prove something? The simplest way is to actually do it, so how do you prove to a regulator or a client that you comply with the law? The best way to prove that you provide clients with the best possible services is to provide them with the best possible services. Ultimately, you need to be doing this day in day out.”

She then enumerated three steps towards this goal.

Step 1 – outline to your organisation what is and what is not acceptable, telling everybody that it is definitely not acceptable to “tweak relationships to make a profit for yourself.”
Step 2 – when you are changing a proposition, or changing a relationship, or doing something else, make sure that you can give examples of your decision-making, logging such details as: “I thought of how to minimise the consequences of something going wrong and did this, then I thought of making the experience more flexible for the customer and therefore changed that.”
Step 3 – try to make it easy for people to do the right thing by realigning incentives and pay structures.

Line of technology code on macbook pro white

Bruce Weatherill then asked Vanita’s victim a philosophical question, to general laughter: “How do you prove that you walked out of the room?” Another panellist said that in the regulator’s eyes, even the testimony of someone who watched it happen “is not enough,” adding: “it’s all about evidencing that.”

Mark Spiers of the Bovill compliance consulting group, which has built its team up to an impressive 40 fee-earners, said that his firm was finding that the FCA had taken to asking such questions as “why does the customer not buy your product?” Michael Bennett added: “they are now blaming you when you don’t do something; it’s just as important as when you do.” Bruce Weatherill said that in present-day court cases, the weight of documentation requested “is amazing – they really want you to be able to say what were you doing on such-and-such a day at 11 o’clock!” He added that the the FCA was now asking firms such questions as: “show us the products that you decided were not suitable for clients.” Bruce also said that people were now having to ask clients who’d been with them for 20 years or so questions such as “what was your source of wealth 20 years ago?”

The last thing you want is a solution that’s just there to keep the regulator happy. It’ll then be a place where people go to dump data all day long and it won’t be part of the day-to-day way that people work. RMs will find a hundred thousand reasons for not doing it. They think that their relationship with the client is sacred. In their minds the client is theirs, not the firm’s! That mentality has to change.
Gary Linieres
CEO at Wealth Dynamix

Bruce Weatherill conducted a straw poll in the room, asking the proportion (points out of ten) to which the ‘behavioural side’ met conduct risk. Nobody thought that it was ten out of ten; most of the panel thought 6-7. The audience as a whole placed it between 4 and 7. To general laughter, Gary Linieres summed up the state of British software programmes that dealt with the problem: “some of them work well and some of them don’t!”


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