FSA concern over network wrap risk

The Financial Services Authority (FSA) has warned networks may struggle to manage the risks posed by the different ways their appointed representatives (AR) use platforms.

Rory Percival
Rory Percival

Rory Percival, a conduct and risk division supervisor at the FSA, told delegates at The Platforum conference in London last week that adviser firms will have to implement risk management and oversight changes under the retail distribution review (RDR).

He argued that networks in particular may find it difficult to manage the wide-ranging risks posed by their ARs owing to the different ways advisers can use a platform within their business.

Percival said: “The risk management and oversight issue presents a slightly different challenge to the networks. We have seen that advisers use platforms in different ways.

“Where platforms are being used as tools that help advisory firms deliver service to clients, then the risks are likely to be specific to that AR and may vary from one AR to the next. As a result, there may be challenges for the networks in managing these potentially disparate risks.” (article continues below)

Percival also warned advisers using platforms to ensure ongoing services promised to clients at the outset are delivered and that attracting new business onto the platform should not be prioritised above the ongoing service.

He said: “Platforms are increasingly being used to provide ongoing services or to assist with these services being delivered. Where firms have agreed ongoing services with a client, there may be issues to consider.

“For example, is the adviser’s remuneration appropriately structured? It could be problematic if the remuneration structure encourages advisers to focus on new business at the expense of providing ongoing services. Also, can every firm demonstrate they are treating customers fairly by ensuring services are provided in practice and to the standard promised?”