PIA's training and competence guidance

Paul Anderson considers PIA's training and competence guidance

In January 1998, the PIA finally issued new Training and Competence ("T&C") guidance to supersede that issued in July 1995. The document contains detailed information and a number of case studies which firms may find useful when considering how best they can meet the PIA's requirements.
The three T&C regimes

The guidance specifies that a firm will fall into one of three categories, and will therefore require one of three types of T&C regime. Which regime they fall into depends upon how many Designated Individuals they have. A Designated Individual is a financial adviser who either:

• Manages investments with discretion.
• Gives financial advice to customers about entering into investment agreements.
• Takes responsibility for the handling of client money or other client assets.

Firms with no Designated Individuals

These are expected to have in place a "programme". This is a series of T&C activities designed to ensure that a firm meets SIB Principle 9, covering internal organisation. This means that employees must understand the requirement that a firm is properly organised, keeps proper records, and follows well-defined compliance procedures.

Firms with fewer than 10 Designated Individuals

These are described as "small firms" and are required to have in place a "plan" which should be included as part of their compliance procedures. The plan will require the firm to document the T&C arrangements which they undertake in order to show PIA that they have thought about which of their employees need training in which areas, but the plan does not need to be a formal set of written procedures which are agreed before the year starts and are then carried through that period.

The plan should make it clear who is responsible for implementing it, how it fits in with compliance at a firm in general, and how a firm monitors the effectiveness of its T&C plan. For example, they could use Key Performance Indicators such as checking fact finds, not taken-ups, persistency rates, complaints and so on. This is because firms will need to show PIA that their training has been aimed at the requirements of particular individuals, rather than simply keeping the employees up to date with industry developments in general.

Firms with 10 or more Designated Individuals

These are required to have in place "procedures", which must be written prior to the training being undertaken so that PIA can see the logic which a firm has used when deciding who it will train in what. The procedures would have to cover the full range of training and continuing professional development undertaken.

Competent Designated Individuals

A firm can appoint someone a Designated Individual, but they have to go through a two stage process before they can be deemed to be a Competent Designated Individual. In order to make this progress, a firm will need to design a programme to enable its employees to undertake competently the full range of activities at that particular firm, not just within the industry in general. For example, even if an external recruit comes from a firm's equivalent competitor, they will still need to be trained about their new firm's service standards, compliance procedures, administration arrangements, computer systems and customer base. Every new entrant will need some retraining, and the PIA will expect to see a course designed to fill in the gaps which Designated Individuals may have in their knowledge. The starkest example of this would be if an IFA recruited a former tied agent. Until such a new recruit has been retrained, they would not be allowed to conduct investment business.

As well as checking that employees have relevant firm-specific knowledge, firms will also have to check that they have relevant qualifications and give appropriate advice. Only when they are satisfied that an employee has passed these tests will they have completed "stage 1".

The process of passing "stage 2" is mainly concerned with checking and fine tuning on-the-job performance. This field monitoring is essential to ensure that, not only do employees have the relevant knowledge, but that they can apply it correctly. Only when a firm is satisfied that this is the case can it pass an employee through stage 2 and designate them a Competent Designated Individual.

Even in relation to such an individual, a firm will need to ensure that it has in place an effective continuing professional development programme which is aimed both at market developments in general and at that individual's specific weaknesses in order to be able to demonstrate to PIA that such a person has correctly been allowed to continue carrying on investment business with the Competent Designated Individual label. In particular, the PIA will want to see the quality, not the quantity of CPD undertaken, and to see that such attendance is tailored to particular individuals, not the mass of employees.

Supervision

In order for a firm to carry out such a training and competence regime effectively, they will need to have supervisors who are capable of deeming persons to be Competent Designated Individuals, and carry out all the other training tasks. Therefore, the supervisors themselves will need to be specifically trained for the three main tasks which they will have to undertake, which are:

• Teaching.
• Monitoring.
• Assessing.

In order to undertake these tasks, expert on-going development is essential both in relation to the direct supervision of non-Competent Designated Individuals, and the continuing supervision of Competent Designated Individuals.

Conclusion

The PIA sees training and competence as essential both to protect the public and to maintain confidence in the industry. It is clear from their initiative on Pension Transfer Specialists (see FS Brief 28, page 18) that the PIA are prepared to look at specific areas as well as the industry in general, and further developments in relation to training and competence are to be expected.

One message which comes across very clearly from the case studies in the T&C guidance is that, if the training programme / plan / procedures are not recorded in writing, then as far as PIA is concerned they may as well not have happened. Each firm will need to ensure that their training and competence regime and attendance at CPD courses are carefully documented. The PIA will be looking for a focus and quality to training, not just the quantity undertaken.

Firms will need to take training and competence as seriously as any other part of their compliance activity.