You’re a financial advice firm. You have a whole load of regulatory and business legislation to stay on top of - as well as the usual business stuff (marketing, technology, proposition, HR), and, occasionally, actually seeing clients.

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Fitting in compliance is on top is tough, so additional support makes a big difference. But where do you start?  

Here, we’ll take you through the why, the how, and the what to consider when it comes to choosing the right compliance support for your firm.  

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Why do firms need compliance support?

While it is of course mandatory to have designated senior managers, SMF16 and 17 in particular from a regulatory perspective, it isn’t technically a requirement to have dedicated compliance support, either in-house or outsourced.

However, given the fact that running a business is a full time job, and seeing clients is a full time job, very few business owners have the capacity to also fit in the full time job of staying on top of regulatory updates. So compliance support is commonly considered a default part of the modern advice firm.

As with every other part of the business, you can have it all in-house, you can have it all outsourced, or you can a mix of the two.  

This is the same if you are thinking about, say, your paraplanning support (where you might have an in house team with flexible overflow from an external firm) or your accounting (where you might have a bookkeeper reconciling the back office system, complemented by an external account for annual returns).

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Lines of defence

One way to think of compliance is the lines of defence approach.

The lines of defence analogy is an ideal framework for showing which of a firm’s functions and individuals contribute to identifying, controlling and mitigating compliance risks.

A really robust framework would look something like the below:

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In an advice firm, this could be:  

• First line – the adviser themselves (potentially supported by admin and paraplanning, as an extra pair of eyes)  

• Second line – internal compliance, providing guidelines, frameworks, checklists and doing file checks.

• Third line – checking the checkers (reassessing some of the internal checks done) and independent annual audits.

Clearly this could be overkill for a solo adviser firm, but you could need this, plus sub-levels, for a large, national firm.  

So the starting point is considering what your lines of defence are, and where the gaps may be. This will help your decision as to how much of this needs to be internal vs outsourced.  

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Definitions of compliance

If you’ve spent even five minutes with the FCA Handbook, you’ll know that vast swathes of it are open to interpretation, and so it shouldn’t come as a surprise that there are many interpretations too of what compliance support looks like.

• Many advisers have chosen to go down the network route in the belief that it means all the compliance burden is taken from them, only to discover that is rarely the case  

• Others will go DA with some trepidation about the compliance burden, but discover instead that as long as they have support creating a suitable framework for their business, the ongoing compliance requirements are much simpler than they anticipated  

• Outsourced compliance companies will also have very different definitions. Some are essentially just a place to ask questions (for which they then point you to the FCA handbook). Some are a full extension of your team, living close by and popping in to the office to fill in some paperwork. Others will fall somewhere in the middle of what they consider compliance support, so you need to understand their definition, to match it to your requirements.  

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Exactly what do you need

This is where there is a real skill as a business owner; what stuff do you know you could do, if you just had a bit of time, thinking space but, if you were completely honest with yourself, you know you either a) don’t want to do or b) know it’s not your skillset?

We all do it; especially in a smaller business it often feels easier to just think “I’ll do it faster” or “I can just figure this out”.

Being completely honest with yourself and writing a list of the stuff that really isn’t where you should be spending your time will be a huge help:

You may be super capable, with a phenomenal ability to learn new stuff, but recognising at some point that no one person can do everything, and be incredible at it all, will set you free!  

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Your uniqueness

A key part of your compliance support will come down to your business type. There are more and more innovative advice business models coming through, not least with the advances in tech and AI, plus the advice / guidance boundary and the growth of coaching and, whether your compliance is in house or outsourced will, in part, depend on the ability for the support to reflect your business needs.

In house might feel easier in this instance as they will fully understand your model, vision and goals, and can factor them in. However, be mindful as that can also lead them to be more likely to find a way of saying yes (for the purpose of the bigger picture) instead of trying to find the potential problems (as way of then mitigating them and derisking you).

An outsourced provider, that understand your model, and can help you achieve your dreams without accidentally crossing any lines can give you the peace of mind of not marking your own homework.  

One thing is for sure and a large scale provider than just offers default, generic compliance support is going to be of extremely little value to you.  

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‍The hybrid way

For most businesses, regardless of their size, a mix of in house and outsourced is the way to go, with the distribution of the work, focus and actions varying from firm to firm, depending on their internal skill set and business needs.  

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Key takeaways

Remember, your business will continually evolve. This could be due to growth (hopefully!) or through a change in personnel and roles changing. Or something minor like a global pandemic causing you to re-evaluate plans.  

The above considerations therefore will be applied to your business as it is right now, but to be afraid to regularly reconsider the answers to the questions and determine whether your existing structure remains appropriate – or needs updating ahead of the next phase of your business.  

Need more? Our expert team is always happy to take you through the details of all your compliance support options – get in touch to speak with us today.