31st August 2021

Paraplanners lost in the ether of regulation

The SMCR’s (Senior Managers Regime Certification)  was created to address risks posed by adviser firms employees, whose role may allow them to do ‘significant harm to the firm or its customers’.  

Under the SMCR, firms must implement an annual certification process for those employees who may fit that collective to ensure that they are fit and proper to perform their roles competently and safely and more importantly, that the regulator knows exactly who they are. 

That should include paraplanners. It does not. This is a classic example of regulation snatching defeat from the jaws of victory.

I was aware in late March this year that Paraplanners had gone AWOL in the SMCR process. They have the capacity to cause ‘significant harm to the firm or its customers’ by the very clear nature of the role they carry out. 

I was asked to be on the Money Marketing Awards judging panel for ‘Best Paraplanner’ 2021. There was an impressive shortlist of six, four in-house and two outsourced.

I was keen to get an understanding regarding the SMCR and the registration of Paraplanners.

The SMCR does not have a paraplanner category, it has loads of others such as SMF3/ 16/17/18 etc for roles such as Compliance oversight yet when pressed, the FCA advised me that they have no idea what category paraplanners would be if firms did decide to add them.  

Not helpful yet a very simple solution would be to just create a category called “Paraplanner ‘and give it an SMF number! Any paraplanner reading this can check the FCA register to see if they are listed.

But the real worry that came out of my half day’s intensive judging is that for the employed four, none showed on the FCA register. 

Possibly worse was that the two outsource firms were not regulated at all and so not touched by the FCA. I’m not sure about PI implications or even if it is required.

All six assume no responsibilities for their actions simply passing it like a parcel straight on to the adviser.

Paraplanners (for what it’s worth, I they should be called Financial Paraplanners) perform an increasingly important role for financial advisers. 

Paraplanners are often quite young, educated to degree level with a strong relevant academic background but with little experience of life let alone financial services. 

Employing a full time paraplanner will incur significant cost making it not economically effective for smaller firms.  They typically work closely with the advisers they support, conducting research, analysis and writing reports that are used when the final advice is given to the client. It is their input that underpins the quality and integrity of the advice process.

Paraplanners could, for example, be restricting choice by deselecting certain Provider firms, Wrapper, Platform or Investment paths that a consumer/ client only finds out about at a later date.

In my questioning, I asked who was responsible for the research, recommendations and various projections and assumptions. The answer from all six entrants was “the adviser”.

Nothing to do with me mate in fact!

For those who were outsourced paraplanners, that responsibility is very unfairly placed upon the least financially resourced firm, the smaller IFA businesses.

I did contact FCA boss Mr Rathi and asked for some clarity on why paraplanners were not shown clearly or possibly even at all.

His office advised that the SMCR functions listed “are intended to cover only those roles that have the greatest potential to cause harm”. Not quite what the rulebook says. This means, they say, that most individuals working in financial services are not included on the Register”.

In other words, Paraplanners do not have the capacity to do ‘significant harm to the firm or its customers’.  

An opportunity lost. See the full e-mail trail here. 

Advisers who use a paraplanner, from what I see, rely totally on their input to put together their advice plan to the client. They may check or question that input, they may not, yet the paraplanner is not in the frame at all for the work they do that the adviser relies upon and ultimately the client relies on.

It is even worse for those who rely on outsourced paraplanners as there is simply no regulatory sanction to fall back upon, it’s all down to the poor small IFA who again, may or may not check.

We all know, or at least those who have spent as long as me in this industry, that there is no time scale regarding when the wheels of the advice may fall off, normally as a result of yet more retro undiscovered miss selling or enforced reviews like those of the late 1980’s and early 90’s. Think Pensions, FSAVC, endowment reviews. And think, no longstop cut off!

Redress always falls on the least poorly resourced and so by inevitable default the FSCS find themselves clearing up the mess when the adviser goes out of business as they cannot in turn fall back on paraplanner blame and redress from them to ease the pain.

But if the source of the detriment is really the paraplanner as they originated the advice trail  by conducting  research, analysis and writing reports that are used when the final advice is given to the client that the firm/ adviser relied upon, Rathi is simply wrong.  

Outsourced paraplanners and their activities must be regulated and those working in house identified very clearly on the SMCR without further delay.

Paraplanning, Panacea Comment, Regulation