How the induction process works under SM&CR

Graeme Stewart

13 June 2022

Congratulations! You’ve jumped through all the recruitment hoops and over the regulatory obstacles to safely recruit your new adviser.  

Now let’s get down to the hard work ahead… the Induction process. 

Similar to the recruitment process, the FCA very much leaves the Induction and supervision process down to the firm, and it’s certainly to the firm’s internal Training & Competence (T&C) plan that you will have to turn to now. 

If your T&C plan doesn’t already cover in detail the induction process and the path the firm will now follow to ensure the adviser reaches competency, stop now and rewrite the plan so that it does.  

While a decent compliance support provider can supply a T&C template, you need to personalise this to identify and mitigate the risks that are specific to your firm and construct an induction plan suitable for your firms’ activities and resources.  

The FCA would very much like to see a firm taking a robust approach to Induction, making sure that any new adviser is supervised and monitored appropriately as they embed into the firm and start to provide evidence of their competency. 

A good induction process would include setting a training plan to incorporate: 

Compliance considerations 

• The staff member being made fully aware of their role and responsibilities 
• The key governance arrangements within the firm (for example: the firm's complaints procedures, anti-money laundering procedures, vulnerable client procedures etc.) 
• Don’t take for granted that the new recruit will have had recent, accurate or valuable GDPR training. Provide this yourself, or seek appropriate support to deliver this 
• The staff member being fully aware of the firm’s IT policy and procedures, also ensuring the new adviser can connect and communicate securely   

Top tip: Having constructed your plan, spend time on the activity to complete it as CPD activity. 

Administrations processes 

• Use of research and other software tools 
• How these are filtered and used 
• How the admin / paraplanning function operates  
• Process to submit new business and the post-advice processes 

Top tip: Get someone who has experience and knowledge to work with the new adviser on their first half dozen cases. Don’t worry it this isn’t you or the usual supervisor. 

Advice process 

Remember the FCA expect hands on, pro-active supervision of new staff in the early stages of their career within your firm. 

• Disclosure documentation (how will you evidence the new adviser can disclose to the firm’s standard?) 
• Fact finding requirements (chances are that your fact find will be very different from the one the new adviser is familiar with, so how will you evidence their competency in using it?) 
• Research/ due diligence process (if you stress test your cash flow calculations, how will the new adviser evidence their competence to follow this firm standard?) 
• Suitability report (how will the new adviser know what the firm standards are?) 
• Periodic assessment of suitability process (the adviser may have been following a completely different approach until now, so how are you going to train the adviser to complete this to your firm’s standard?)  

Top tip 1: Follow the supervision activities described in you T&C plan (live observations, role play and question and answer assessments to record the evidence of adviser competency).  

Top tip 2: If you think that the level of supervision you are providing in the early days is starting to look a little bit heavy, you are still probably quite far off the level of supervision the FCA would expect.  

In summary 

The changes brought about by the SM&CR don’t just mean that the firm needs to complete the recruitment of a new adviser by themselves, it also means that there is a much higher level of expectation when recruiting and inducting under the code of conduct rules. 

The SM&CR is less about rules and much more about the culture of the firm. Culture is defined as the habitual behaviors and mindsets of the firm driven by the firm’s: 

• Purpose 
• Leadership 
• Governance arrangements 
• Treatment of people 

Having a robust hands-on approach to induction is a good habit to have. 

Being able to demonstrate the supervision completed with Induction checklists and CPD evidence is also a good habit to have. 

Leaving a new adviser to find their feet by themselves and allowing them to make mistakes and learn from them over time… well, we all know what that type of habit is.  

Coming up in part 3: Just what do firms need to do now that the FCA Directory is up and running?