Sententia articles May 2020

In this issue

Meeting the Challenge of SM&CR and PROD

Novia's Director of Sales Paul Boston looks at the two-headed challenge presented by the combination of PROD rules and the roll out of the SM&CR across the Financial Services industry - "...a significant regulatory force to be taken very seriously, with potentially far reaching repercussions...'

Covid-19 and the drive to digital engagement

Novia's chief technology officer, Dave Howard, asks what the pandemic's impact on society means for the future of our industry and what technology is need to support remote working.

Helping you deliver for your clients during lockdown and beyond

With lockdown dragging on, Advisers are under increasing pressure to find new ways to work with clients who are used to face to face meetings, without compromising service standards. As a platform, we want to make this easier... 

Meeting the Challenge of SM&CR and PROD


Taken individually, both PROD (Product Intervention and Product Governance Sourcebook) and SM&CR (Senior Managers and Certification Regime) are each formidably challenging pieces of regulation. Married together, their power is intensified and for those who, like me, hold senior management functions, it's hardly overstating it to say the pairing can start to feel like a camouflaged banana skin lying on thin ice; what’s certain is that coupled together, they represent a significant regulatory force to be taken very seriously, with potentially far reaching repercussions.

What is SM&CR? The Senior Managers and Certification Regime is mostly thought of as regulatory tinkering, but it really isn’t. It constitutes a profound change in one’s personal responsibility for all that comes with being a business leader and ultimately it represents the FCA’s scope for recourse action. It was introduced as a result of the 2008 banking crisis, (some may remember Sir Fred Goodwin the then CEO of RBS who couldn’t be prosecuted for any offence despite a very obvious appetite to do so – in the end he lost his knighthood) and the subsequent LIBOR and FX rigging scandal, where again senior managers responsible for culture in the business couldn’t be brought to justice, despite the effective prosecution of some of the traders.

SM&CR was introduced into Banks in March 2016 to make senior managers personally accountable for any failings within their business. The FCA states it positively as “the opportunity for financial institutions to establish healthy cultures and effective governance by encouraging individual accountability and setting standards of personal conduct”.  It has been largely seen as very effective over the last four years in changing banking culture for the better and has subsequently been introduced to all Financial Services businesses, reaching us in December 2019.

What is PROD? This was introduced in January 2018 as part of MiFID II and the purpose in simple terms is to ensure that the investment products/solutions recommended fulfil the needs and objectives of the advised client. This is not FCA guidance; this is an FCA rule.

This makes it vital to segment client banks into specific cohorts typically broken down by accumulation, preservation and decumulation, with further subsets as necessary and to have designed solutions that fulfil the needs and objectives of each cohort, and selected the best means of delivery i.e. made the right choice of platform. By way of example, if your investment proposition involves ETFs, it doesn’t make sense to select an administrator that doesn’t enable aggregated and fractional trading as the trading costs will prove prohibitive and the client will suffer cash drag. It goes without saying that all of this needs to be documented in an investment governance document, typically 30 pages - no mere box-ticking exercise!

The FCA gave a year’s grace for advisers to get their house in order but have indicated recently (pre-COVID-19) that they plan to come down heavily on any firm not complying. If you haven’t nailed PROD rules (we are very happy to support here with Copia customised solutions) then the Senior Management Function Holders will be personally accountable for this business failing, with personal liability for any resulting client detriment.

A camouflaged banana skin on thin ice? Only for those that haven’t seen it and taken the required action.


Covid-19 and the drive to digital engagement

A lot has changed in the seven weeks since lockdown began. The NHS has become a national treasure with even Boris now a born-again supporter, after his near-death experience  and re-emergence as the proud father of Wilfred Lawrie Nicholas Johnson; Priti Patel announced shoplifting crimes are down(!); Greta Thunberg is old news; zooming is no longer just something you do with a fast car or a camera lens, and perhaps most surprisingly of all, I have learnt how to pronounce epidemiologist.

On a more serious note, lockdown is estimated to be costing the UK £2.4bn a day and this is not sustainable. Hard choices will have to be made about restarting the economy vs protecting the NHS and saving lives. A vaccine is the only sure-fire solution, but most experts believe this is 12 -18 months away. In the meantime, mass testing, contact tracing and proof of immunity will be required to limit the damage being inflicted on our economy and on the well-being of society and the workforce. It is inevitable that personal privacy will be traded-off against the common good of increased disclosure and more invasive surveillance.

So, what does this mean for the future of our industry?

  1. There is no way back. Covid-19 will be the biggest accelerant for end-to-end digital journeys. So-long paper, wet signatures and cheques.
  2. Platforms that enable advisers to effortlessly engage with their customers and offer peace of mind through enhanced security will be the winners.
  3. Remote working is here to stay; the impact on transport infrastructure spending, expensive office accommodation, business travel via planes, trains and automobiles will be profound with big wins for the environment. The Extinction Rebellion is now looking like a rebel without a cause as air travel implodes, oil price plummets and we shun public transport in favour of cycling and electric scooters.

At Novia we have adapted quickly and are now operating remotely with no impact on service levels and service efficiency. However, our development priorities have changed to focus on supporting our advisers to help them continue to win business, support their client base and reduce costs by eliminating clunky processes. Our immediate priority is to reduce the need for wet signatures and paper documentation. New business does not require a wet signature and we have adopted scanned signatures for Origo transfers and are prototyping electronic identification and verification solutions (think of the challenger banks like Starling, Marcus and Revolut) for withdrawals. In parallel we are continuing to enhance Adviser Zone, Report Zone and Investor Zone to add to the on-line journeys already available and to refine the user experience.

The technology required for advisers to support remote working is relatively modest, comprising:

  1. Encrypted e-mail and document management that supports electronic signatures
  2. Video conferencing
  3. A web-based calendar that allows clients to book appointments directly without having to check availability

The bigger challenge is the behavioural change and becoming confident and fluent in the adoption of remote interaction as the new face-to-face. We will acclimatise though, and once the immediate threat has passed, the nimble and agile will thrive as new ways of working sweep away businesses that lack the will and the DNA to adapt.


For more on the adoption of technology to facilitate remote working, see this NoviaIQ video where Dave Howard, Paul Boston and Jake Barber from SJB Global share their experiences of how effective use of remote working can be employed successfully for Adviser practices. 



Helping you deliver for your clients during lockdown and beyond

With lockdown dragging on, Advisers are under increasing pressure to find new ways to work with clients who are used to face to face meetings, without compromising service standards. As a platform, we want to make this easier.   

We were very happy to offer uninterrupted phone service immediately upon lockdown and we were quick to modify a number of processes to enable you to do business such as accepting a wider range of scanned documentation (click here to find out more), but we would also like to remind you that we also offer a wide range of tools and reports both to assist you in providing a service to your clients and to provide information for your own internal reporting.

Managing Portfolios

For Advisers running a Centralised Investment Proposition and/or Centralised Retirement Proposition, Model Portfolio Manager offers the ability to quickly and easily create or change portfolios as needed – in bulk or individually. With MPM also available to the more than 100 DFMs available through Novia, if you choose to outsource your portfolio construction, they can use the same technology to quickly and easily update their portfolios as needed. In addition, you will be notified when portfolios pass the 10% drop threshold for reporting to clients by means of Tierdrop, our 10% drop reporting tool.

Offering security

For clients who are planning to retire soon or who are already in retirement, the state of the stock markets is also an all-too-real reminder of the need to secure income to cover the essentials in retirement. Those of you who attended our recent webinars will be aware of our Guaranteed Income option available to those in Flexi Drawdown; for those of you who haven’t, watch our webinar with Rory Percival and Just. You can also find out more in our follow up webinar.

Planning and reporting tools to assist you with your clients’ lockdown finance reviews

With so many people at home at the moment, people are making use of this time to revisit their investments, as research shows. Our tools will help you quickly and easily provide clients with the information they need to understand their investment position and, with your guidance, make informed decisions about how to invest going forward. Here we have highlighted just a few tools and reports to help.

Capital Gains Calculator

While many may have turned their attention towards CGT reporting during the first quarter of the year, it really is a tool that should be used all-year round. The Covid-19 pandemic has raised many questions from clients as to how they live their lives, and how their personal finances play into this. CGT analysis doesn't just present a picture of a gains/losses position with stocks, but allows you to compile a complete position of standing for a client.

The reports are well presented and easy to use, and can be looked at in conjunction with accountants or tax advisers where necessary to help assess a client’s tax position. They can be easily read alongside off platform assets and property to determine any changes that can be made, or any losses realised to help clients during this difficult time.

The Novia CGT tool is at the cutting edge in the market because it:

  • provides both realised and unrealised reporting
  • takes into account notional distributions on accumulation units. This is crucial and ensures that clients do not pay tax twice, firstly on income rolled up in the unit and then on capital when units are sold. The ability to distinguish these distributions and remove them from the calculation is crucial.
  • recognises equalisation payments. Much like notional distributions, these pay income to a client for a period in which they were invested between an ex-dividend date and a payment date. It is important these payments are recognised and not taxed as capital as part of a CGT calculation.
  • can carry over and load in book cost. Where clients have re-registered from another provider it is important to make sure the calculation is correct and based on the original book cost of the asset. The tool allows you to do this where the figure has not been provided by the previous provider.

In a time of change and uncertainty clients can be sure in the certainty of tax. The tool provided by Novia can help you engage clients and work with them all-year round.

Report Zone

To help you monitor your business and provide content for your client reporting, we have a large number of reports in our MI suite Report Zone that will allow different members of your team to keep on top of their reporting across three main areas:

Reports for use with clients - including the very comprehensive Portfolio Summary Report as well as a number of smaller reports covering specific content such as asset allocation.

Reports about clients and wrappers - including reports to allow you to identify clients who are holding cash balances, those who have outstanding ISA allowances or even simply identify every client who holds a given asset should you have concerns.

Reports for Business Administration – allowing access to a wide range of reports covering all business via Novia, including Adviser Charge reconciliation and integration options with back office providers.  You can even run reports to give you an overview of exposure to different fund managers, or perhaps compare charges across all clients to help you monitor your business in keeping with TCF and RDR.

Lifestyle Planner

To give your client a snapshot view of the lifestyle their current investment approach may afford them in retirement, our simple to use Lifestyle Planner allows you to show different ‘what if’ scenarios to illustrate the potential impact a small change can have. The tool allows you to quickly and easily generate a range of scenarios and illustrate their impact, be it a small increase in regular investments, that dream holiday at retirement, or simply a delayed retirement.

With lockdown giving people more time to think about their financial future, we hope our tools and reports will help you assist them to better understand their investments.