There’s nothing that focuses the mind quite so much as a deadline, as many advice firms have found in their preparations for the extension of the Senior Managers and Certification Regime.
There has been some confusion around the circumstances in which the SM&CR will apply to paraplanners. With just three months to go, how do you work out when SM&CR applies to paraplanners and when it does not?
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It’s a grey area
Para-Sols director of operations Jo Campbell is increasingly asked whether paraplanners are to be covered under the new regime. “The answer is maybe, maybe not. It’s a grey area, and within that grey area there are lots of sub categories – 50 shades of paraplanner, you could say,” she says.
The section that paraplanners potentially fall into is the certified people category. This ensures that anyone who has a potential impact on clients is certified to do their job.
“You will need to exercise judgement on whether a specific person/role requires certification,” says Campbell. “It will depend on the complexity of the role, how automated the work is and whether it involves exercising discretion or judgement. Obviously, the more discretion, complexity and judgement involved, the more chance that role will be required to be certified.”
Some advice firms are of the opinion that it would be easier to work out where paraplanners stand under the SM&CR if there was a firmer interpretation of their role within a business.
The bottom line is that it is the responsibility of the firm to identify its certified persons and train them
Beaufort Financial (Reading) director Graeme Bone says: “The term paraplanning embraces a wide range of roles from report writing to someone who is almost knowledgeable enough to give advice. However, for the benefit of the employee and employer, there needs to be a greater understanding of the role an individual paraplanner.”
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SimplyBiz Group director of compliance policy Richard Nuttall thinks the need to be certified would not be the norm for paraplanners, as most will align their role to the firm’s centralised investment proposition.
“Any discretion beyond that would normally be subject to agreement or signed off by the client’s financial adviser,” he says.
“Where total discretion is held, it would likely be that the paraplanner would hold a more significant role within the firm that would require them to be certified.”
No-man’s land
To some advice firms, the difficulty is that paraplanners are potentially left in no man’s land in relation to the SM&CR. As Intelligent Pensions technical director Fiona Tait points out, not all paraplanners neatly fit into ‘advice’ or ‘administration’ boxes, so the FCA granting firms “flexibility to exercise judgement” on who should be certified does not help.
Para-Sols’ Campbell gives examples of paraplanners who should probably be certified – such as those on investment panels or creators of a firm’s central investment propositions, those who participate in client meetings and those who conduct research on providers or complete platform due diligence.
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Automated functions
Examples of paraplanners who may not need to be certified are internal paraplanners who follow a largely automated function (such as those who are report writers only), and those who work within restricted advice firms and who have no input on recommendations, providers, funds or strategies. But what about outsourced paraplanners?
“This is potentially complex as it depends on the nature of the appointment,” says Nuttall. “Assuming the appointment is made to another firm that provides remote services, then SM&CR will not apply.”
However, advice firms must still ensure any delegation of duties is carried out by a firm that is competent in the duties they provide.
“A simple way of demonstrating this would be to seek confirmation that all employees within the outsourced paraplanning firm have completed conduct rules training, and so demonstrate they will apply an ethical standard to the services provided,” says Nuttall.
Linda Gibson, director of regulatory change and compliance risk at BNY Mellon’s Pershing, says that in most cases paraplanners are not authorised to sign off recommendations or transactions, but their role has the potential to cause significant harm to clients, bringing them within the scope of the SM&CR.
If staff are invaluable and they have an influence, get them certified. It can’t hurt if you do, but it can hurt if you don’t
“Not having authorisation to sign off investment decisions may have provided a get-out-of-jail-free card under the previous Approved Persons Regime, but the extended scope of the certification regime means they may now be covered,” she says.
“The bottom line is that it is the responsibility of the firm to identify its certified persons and train them accordingly.”
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Better safe than sorry
Campbell’s advice to those who are unsure where their paraplanners fall under the SM&CR is to assume they need to be certified.
“If any of your staff are invaluable to you and your business, and they have an influence, get them certified.
“It can’t hurt if you do, but it most certainly can hurt if you don’t,” she says.
Tait agrees. “The FCA does have form in this ‘It’s up to you’ approach, and our experience is that it is usually best to err on the side of
caution,” she says.
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