Holiday cover: a qualified paraplanner on the phone
Ashgrove Financial Planning Ltd is an FCA-authorised independent advice firm. Its only retail investment adviser, Ruth, is on maternity leave from 1 June. Priya has been Ashgrove's paraplanner for three years. She holds a Level 4 Diploma but has never been certified as competent to give advice, and she is recorded on the FCA Directory as a paraplanner. On 14 June a longstanding client, Mr Iqbal, telephones asking whether he should move his £85,000 ISA from a balanced fund into a global equity fund. Priya researches the options, calls him back that afternoon, recommends the switch and sends a suitability report. The operations manager says this is fine because 'Priya's qualified and Ruth will sign it off when she's back in September.'
1. Was Priya's call with Mr Iqbal a regulated activity, and which permission and competence regimes are engaged?
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Yes - and the firm-level permission is not the issue; the individual is.
- Regulated activity. Advising on investments is a specified activity (Article 53 RAO) in relation to specified investments. A personal recommendation to a retail client to switch £85,000 between funds is precisely that. Ashgrove holds the permission, so there is no s19 FSMA problem at firm level.
- Certification regime. A retail investment adviser is an FCA certification function under the SM&CR. The firm must certify the individual as fit and proper before they perform the function, and re-certify annually. Priya has never been certified, so she was not permitted to give the advice.
- Qualification and standards. Her Level 4 Diploma satisfies the TC 2.1 qualification requirement, but she also needs a current statement of professional standing, up-to-date CPD, and she must be recorded on the Directory as a retail investment adviser - not as a paraplanner. Advising clients while publicly listed in a non-advisory role is itself a fitness and propriety problem.
- Conduct rules. COCON Rules 1–6 apply to her, in particular acting with due skill, care and diligence, and treating customers fairly.
- Advice standards. COBS 9 applies to the recommendation: it must be suitable on the information gathered about Mr Iqbal's objectives and circumstances, and evidenced in the suitability report.
Being 'qualified' and being 'certified for the role' are different tests, and Priya satisfies only the first.
2. The operations manager says Ruth will sign the file off in September. Does retrospective approval cure the problem? What should the firm do?
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No - certification is prospective.
- The firm must be satisfied before the person starts performing the function. A signature in September would only record that she had been doing the job without authority since June.
- 'Ruth was supervising' is not a defence either: Ruth was on maternity leave and had no involvement. The claim misdescribes the regime rather than mitigating the breach.
- The decision has already been acted upon - Mr Iqbal may have switched. The firm must now:
- review the recommendation itself for suitability (asset allocation, capacity for loss, timescale, concentration risk). If it was unsuitable, consider remediation and redress;
- identify and review every client contact Priya handled since 1 June;
- record the breach and assess whether it is significant enough to notify the FCA under SUP 15.3;
- put proper interim cover in place - a certified adviser, or a documented referral arrangement for clients who need advice before September;
- consider the SMF16's oversight and the root cause: who agreed holiday cover, and why was it not checked against the certification register?
- The fact that Mr Iqbal may have ended up with a suitable outcome does not cure the process failure. The FCA regulates systems and controls, and a client-facing function performed by an uncertified person is a control failure in its own right.
3. On 15 June Priya posts on her personal LinkedIn account: 'Our balanced fund has beaten the benchmark for 5 years - 7.2% a year, guaranteed to keep going. Message me to switch.' What rules apply and what is wrong with the post?
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It is a financial promotion, and it fails COBS 4.
- s21 FSMA. A financial promotion must be communicated by an authorised person or approved by one. Ashgrove is authorised and Priya is communicating in the course of the firm's business - she invites clients to switch - so s21 is satisfied but the content rules bite.
- COBS 4.2. A promotion must be fair, clear and not misleading, with benefits not given greater prominence than risks and with the required risk warnings. The post fails on several counts:
- 'guaranteed to keep going' is a promise about future performance. Past performance is not a guide to future performance and the prescribed warning must be given;
- '7.2% a year' is quoted without labelling it clearly as past performance, with the period and the source, and without the caveat that charges are not reflected;
- there is no risk warning, no mention that capital is at risk, and no reference to charges.
- Social media. A personal account does not escape the rules where it is used for business. The firm must be able to identify, record and monitor promotions it communicates; deleting the post does not undo it.
- What the firm should do: screenshot and log the post; take it down; check whether any client acted on it and treat those cases as potential unsuitable sales; review all staff social media; ask who approves promotions, because the answer appears to be nobody; deliver immediate training, including to Priya; and consider self-reporting if a client has suffered detriment.