FCA lead associate Christopher Hewitt, an expert in due diligence, says 'size doesn't matter' when it comes to Paraplanners and Financial Planners complying with regulatory due diligence demands.

Mr Hewitt, speaking at the CISI Paraplanning Conference today, said that too many small financial advisory firms complained that they were not big enough to run a robust research and due diligence approach but this was not acceptable.

Speaking about the FCA's recent review of research and due diligence he said that the FCA found many good examples of robust due diligence approaches, even in the smallest advisory firms.

He said:"We often hear the comment that due diligence is too time-consuming and too cost-prohibitive for small firms. We don't agree wth that. We saw several small firms, including one man bands, doing very well. Size doesn't matter."

Overall, he said the FCA found elements of 'good practice' at nearly all firms but sometimes this good practice was not replicated across the entire firm.

He said that while the review found that the most of the 13 adviser firms visited as part of a sampling exercise were doing well on research and due diligence there were several examples of poor practice including one firm recommending corporate bond funds to nearly all their clients because they thought they were low risk. Others confused volatility and risk when selecting investments. The criteria for investment selection should be clearly documented and recorded, he said.

Mr Hewitt also said that there needed to be a more thoughtful approach to platforms because they were not necessarily right for all clients and some clients assets may be better held "off platform."

He said they had seen one example where a client with one product saw the product moved on to to a platform even though that may have pushed up costs. Paraplanners should consider whether some assets would be better held off a platform and not adopt a 'one size fits all' approach.

When it came to due diligence he said Paraplanners had to ask two key questions: do they understand the products being recommended completely and were they happy trusting clients' money with a particular provider.

As part of the FCA review into advisers' research and due diligence processes, the FCA visited 13 adviser firms, 3 providers and 7 third party consultancies. 

One positive assessment of the review was that firms were consistently quoting on costs and that focus on costs was growing. This was a positive thing, he said, because costs could be measured accurately and were a good tool to use.

Due diligence also needed to be a robust, ongoing process and to be at the heart of the Financial Planning system with due diligence subject to ongoing reviews, not just becoming a one off exercise. In any firm, due dilgence required a "culture of challenge" so that evidence was challenged regularly and Paraplanners and other staff in the firm needed to be involved in due diligence.

He recommended Paraplanners review FCA paper TR16/1 and also bookmark the FCA's website page on 'assessing suitability.'

The FCA will be holding Live and Local events, including sessions on due diligence, over the next year around the country.

Mr Hewitt was one of the keynote speakers at the CISI Paraplanner Conference 2016 this morning, speaking to over 100 delegates. 

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