The Specialists

A swarm of consultants is buzzing round brokers. They're attracted by the honey of hard cash that must be spent if compliance is to be achieved by January 2005.But do brokers really need a consultant to tell them how to trade compliantly? There is a stubborn streak of independence running through most of them - they don't like being told what to do and they certainly don't like having to pay for the privilege. And it is clear there are still many thousands of brokers who are not prepared to call in a consultant. And what is needed, according to most experts, is common sense, and if a business has been run sensibly, surely the FSA will not be too hard a taskmaster?But the fact that so many consultants are now on the scene shows there is demand. Institute of Insurance Brokers (IIB) director general Andrew Paddick insists most brokers do need "professional help". And, he argues, that his arrangement - being run with the IIB, its sister association the UK Financial Services Consortium, IFA services company Bankhall, and insurer Broker Direct, is the right one to choose."It's comprehensive - we're providing software and access to a huge amount of expertise. It's a Rolls-Royce service."He warns against some other consultants also peddling their wares. "There are an awful lot of them out there and not all of them know what they are doing."Exhortation is the name of the game as consultants battle for clients. Robin Wood, one of the best known names in the compliance consultancy market, describes the current environment as a "shark fest". He set up his firm - Robin Wood Associates - eight years ago. He was previously on the Insurance Brokers' Registration Council, where he dealt with complaints. "Having an intimate knowledge of what can go wrong is more than useful and it won't take too much for the FSA's antennae to be raised."He says his firm is busier than ever, employing a range of well known consultants, including Alex Peterkin as director of compliance. It also recently took on Catherine Nicoll, former director of GISC. "We have incredibly high standards. Nicoll was certainly put through the hoop when she joined. We have a tough structured training programme," Wood says.While independent, Robin Wood Associates is working closely with Biba. It is the approved training partner for the trade body's Compliance Initiative - a scheme that gives members the benefit of compliance help at reduced cost. It also works jointly on Broker Assess, a training and competence package provided by Biba in association with the CII. "Biba is doing a great job right now and gaining members because of the compliance help it is offering," Wood says.

Straightforward wayOutside of Biba, Robin Wood Associates provides a range of consultancy services, including health checks, workshops and residential courses aimed at brokers.Wood insists that an independent consultant is often the most straightforward way to reach the required standards. Another options is to join a network. Mike Williams left Biba to head up Total Broker Solutions because it offered entrepreneurial opportunities beyond those at a trade body. Lloyd Hanks left the world of insurer Groupama to manage Network Extra, which is part of Richard Sheikh's Camberford Law empire.But these have their supporters and detractors. Some point out that in the IFA sector, where they have a longer track record, not all relish being members of networks. Adam Samuel, a compliance consultant who runs his own business, says: "Smaller brokers will be forced to look at this as an option, but others will resist at all costs. Many IFAs are not happy in networks. They see them as a stranglehold. And networks too have been fined showing that they themselves can run into problems."As for insurer-run compliance schemes, Wood is sceptical. He questions whether they are going to be there for the long haul and whether they could compromise a broker's independence. One benefit from using an insurer scheme, though, is that it may well involve access to compliance consultants and at either no or reduced cost. PricewaterhouseCoopers (PwC), for example, is working with Norwich Union to provide consultancy services for some of its brokers. Paul Clarke, partner in financial services regulation for the firm, says for many smaller firms, using a major consultancy would not be affordable, but an insurer is able to set up subsidised deals. James Dean, head of regulatory consulting practice for Ernst & Young, says his firm will tend to work with larger firms, although it also provides services to the London Market Brokers' Committee, which has members of all sizes. His company has one of the most experienced teams of compliance consultants and he says it is doing well because of its GISC monitoring experience and because it employs many consultants from a general insurance and broking background.Helen Audaer, a senior manager in the financial services advisory practice at KPMG, says while her company does deal mainly with larger firms, it has been "providing a steer" to smaller brokers, particularly for groups of brokers. "We've been providing a range of services, from assessments to verification of compliance work that a broker has already done. Next year we expect to be doing a lot of due diligence work with firms looking to step up their merger and acquisition activity, which brings its own regulatory issues."

Start preparationColin Rawlins, partner with Deloitte's insurance team, comments: "We're working with a number of regional brokers, which tend to have a number of branches across the UK as well as those in the London market. "It seems some are very concerned, whereas others are the opposite, but what is important is that they start their preparation now." But not all brokers will want to work with a firm of major consultants. The cost is one factor. And, according to Compliance Solutions managing director Gary Dixon, a more specialist and smaller firm can provide better value. "I have experience of working for one of the big companies and it can mean that more junior staff are sent out to deal with smaller clients. It is great training, but may not be in the best interests of the broker."Compliance Solutions is part of broker PYV and according to Dixon staff have real understanding of the way the industry works. "We also have in-depth knowledge of the FSA and its protocol and I recently joined its regulation steering committee."He warns brokers that not all consultants know what they are talking about. "There are a number of fly-by-night organisations out there, some real chancers." He says he would like to see a kite-mark scheme launched where brokers can be assured of a consultant's competence.If the prospect of regulation is too much, some brokers may be considering using a consultant to help them achieve appointed representative status, whereby the insurer bears responsibility for compliance. But most consultants say this is unlikely to be a popular route."Insurance companies are not going to be interested. They will be well aware of past experiences in the life sector. "Representatives could not be controlled and heavy fines from pensions and endowment mis-selling resulted," says consultant Adam Samuel.Clarke adds: "We are working with some insurers on this, but it won't be an option for many brokers, who will need to be responsible for regulation themselves. It will be used mainly for major intermediaries, such as those with affinity schemes."This means brokers have to take responsibility. Consultant Tony Rawlins, who runs RM Associates, says there are still a number of brokers taking a "wait and see" approach and who think they don't need to submit forms until July of next year or that there will be an extension of the FSA's deadlines. "The FSA has made it clear that no extension will apply. Let's be clear, regulation now is not the old 'self-regulation' environment firms we're accustomed to. The FSA is a statutory body with far more extensive powers than its predecessors. "The deadlines are not far off and any firm that does not have authorisation will not be allowed to transact business. Our advice is to begin the application process now."

Systemic changesWhile a consultant can be employed simply to help with the form filling, many emphasise that systemic changes may need to be made.The FSA is likely to be around for a long time as regulator and brokers need to see their compliance work as ongoing. Wood says it is crucial for brokers to learn how to do this themselves. This will also save on the costs of consultancy. "Brokers should know when a consultant's work is going to end," says Samuel. "There is a risk some brokers will pay for just a part of the service and then have a forward sell to meet their needs. "The one-shot hit won't deliver, but the broker also needs to know when he can say goodbye."Wood adds: "A broker may think they are out of the water if the FSA approves their application, but unless they can keep compliant permanently, something will come back to haunt him."To allow this, consultants provide a range of services. RM Associates, for example, has a number targeted at smaller firms, including business reviews, with analysis of management structure, compliance and monitoring systems, training and competence programmes and business continuity and contingency plans. It also provides guidance on producing a compliance plan, on money laundering rule changes and regular notice of regulatory updates. Other services are based around client and staff monitoring and it will arrange for a consultant to attend during FSA visits, together with helplines and a number of workshops and courses.This is largely typical of what's on offer - where there will be variation is in the charges and the experience of the consultant. Given that many brokers are not in a position to pay vast sums, most consultants insist they are about providing value for money.Dean says Ernst & Young has tackled affordability by producing a guide for brokers called The Bible. "It is a comprehensive and straightforward pack, which costs £5,000 and also includes support."

Grouping togetherWood says the cost of consultants can be £1,000 a day and beyond, whereas those with less experience may be in the range of £600. He adds there are ways to make the cost cheaper, by brokers grouping together. "We've set up arrangements where there has been a consultant one day a month for six months, which would cost around £300 a month per broker." Rawlins produces a fee tariff, showing costs, for example, for his helplines at £1 a minute to "around £5,000 to complete the FSA application or £2,000 to review."These are early days for brokers when it comes to working with consultants. Many say they are still weighting up their options. Some insist they need no help at all and it's common to hear brokers complain about the cost. A number also don't want to discuss their arrangements. A typical response comes from a spokesman of RK Harrison, who says: "We have someone in-house but are not prepared to make a comment."Alec Finch & Company chairman Alec Finch says his firm is part of network Unitas and has set up its own arrangement with a consultant - although he prefers not to reveal who it is.Ian Richens, chairman of broker FM Green, says: "We took advantage of a subsidised meeting with a consultant, set up by AXA. We have since made Peter Taylor, who is our claims director, our compliance champion and we are helping him by appointing support in the form of a claims manager."Dickson Insurance Brokers managing director Paul Dickson comments: "At the end of the day, it's really up to brokers to get their house in order."

Tips for brokers from the consultants"A consultant should help a broker to set up a proper complaints system. Remember, complaints should always be viewed as an opportunity to learn. They can be a good early warning system and if unjustified, the broker should ask what they were doing in a business relationship with the complainant in the first place."Adam Samuel"Don't believe a consultant that says it will make you compliant. No one can guarantee that. It can help you build a compliant process but the broker must take advice on board. I don't think brokers should be intimidated or panicked either - this will not lead to a good working relationship."Aash Patel, Winchester White"Don't listen to the scare stories. Take your time. You need to have a clear idea about the options for your business before approaching a consultant. Speak to your peers; they may be able to recommend a consultancy that they have used in the past to good effect. See a selection of consultants."Alex Viall, Complinet"Does a potential consultant really understand a broker's business or has it just had experience of pension reviews? Does it understand the lingo? If asked about what happened at Preston Whiteside, will it look at the broker blankly?"Robin Wood"Expect a face to face assessment. IT packages can be excellent but should not be relied upon alone."Adam Samuel

Consultant Contacts

Adam SamuelOffers: Qualified lawyer and former ombudsman, experienced in IFA sector, now working with general insurance casesTelephone: 020 7586 1938Website: www.adamsamuel.co.uk

Compliance ConsultantsOffers: Currently launching service to general sector, available early next year.Telephone: 01625 501 725 Website: www.complianceconsultants.co.uk

Compliance SolutionsOffers: Experienced team working with general and mortgage insurance brokersTelephone: 0116 258 7980Website: www.pyvcr.com

ComplinetOffers: A range of services from consultancy to news and events. Targets IFAs and more recently general insurance sectorTelephone: 020 8246 4100Website: www.complinet.com

Robin Wood & AssociatesOffers: Range of services from experienced broker consultants, also works closely with Biba.Telephone: 020 8481 3933Website: www.brokercompliance.co.uk

RM AssociatesOffers: Practice specialising in regulated financial services sector. Now working with mortgage and general insurance brokers. Telephone: 023 8073 7618Website: www.rmassociates.net

Ernst & YoungTelephone: 020 7951 2000Website: www.ey.com

DeloitteTelephone: 020 7936 3000Website: www.deloitte.com

KPMG Telephone: 020 7311 1000Website: www.kpmg.co.uk

PricewaterhouseCoopersTelephone:: 020 7583 5000Website: www.pricewaterhousecoopers.co.uk

Winchester WhiteOffers: Specialist financial services consultancy. Works with insurers, brokers, affinity groups.Telephone: 01256 363000Website: www.winchesterwhite.co.uk