Performance management = lower risk + better performance


From a regulatory perspective, managing people and their performance must be a key objective for any regulated firm. Where it works well, it helps to drive the performance of the business whilst also managing conduct risk or people risk.  Two pretty important outcomes for any firm, regardless of their size.

Yet in a recent survey1, only 39% of employees felt their organisation’s performance management process is fair. Even a large firm – Barclays Bank – with huge resources was criticised in the Saltz Reviewfor their approach to reward and performance management.  I would love to be able to quote a figure about what percentage of SME firms or smaller regulated firms actually have a performance management process but I have been unable to find any reliable information. Had I been successful, I suspect it would be a relatively low figure. All of this suggests that this important area is one that many firms – and I’m thinking primarily of regulated firms – could be better at.

What is performance management?
It is an ongoing process that involves jointly agreeing personal objectives, expectations and standards of behaviour. This is often referred to as setting out the ‘what’ and the ‘how’ and to illustrate this, an example for an investment adviser is shown in Figure 1.  The ‘how’ is often overlooked but is just as important as the ‘what’. There must be more than just delivering results, irrespective of the consequences.

What I do…. Provide high quality advice

Meet agreed levels of service

Meet compliance KPIs CPD

identify and address development on an ongoing basis

Meet agreed income targets

Meet file quality standards

How I do it….. Consistently fair, open and honest

Show respect for clients and colleagues

Encourage effective team working

Get it right first time Look to develop business opportunities

Present information in a clear and concise way

Figure 1

Performance management should deliver in four key areas:

  1. Improve the performance and motivation of the individual;
  2. Set expectations about behaviour so that these put the client’s interests first, foster effective working relationships and generally support the behaviour the business seeks to encourage;
  3. Identify and stimulate ongoing development; and
  4. Lower the risk profile of the regulated firm.

The case for performance management
For those regulated firms which do not have a performance management (or appraisal) process, why should they bother?  After all, it will take a little effort to either introduce it or amend an existing process, not all employees will think it’s a good thing and it will mean that the supervisor/manager who conducts the meetings may have to have the occasional ‘crunchy conversation’.

On the other hand, the key potential benefits to the firm are:

  • More engaged staff. Everyone will know what the business is trying to achieve and how they contribute to achieving that.
  • Staff know what is expected from them – in terms of performance and in terms of behaviours. This is the ‘what’ and the ‘how’.
  • It identifies what performance in the role should look like and should identify ongoing development opportunities and relevant CPD.
  • Provide a framework to address performance issues / recognise stand-out performance.
  • It helps to demonstrate that the ‘competent employee rule’ (SYSC 5.1) has been met. All the staff of a regulated firm, and not just advisers,  have to be able demonstrate that they have the necessary ‘knowledge, skills and expertise’ to undertake the role – so how better to do so?
  • Link performance to reward. Not all firms make this link but obviously in a regulated world, there is a fine balance to be achieved. Where this has been applied inappropriately in the past, it has driven dysfunctional behaviour. But it can – and should be – used as a force for good. To do so, it cannot be based solely on fee income but should also involve other quantitative and qualitative factors such as client feedback/satisfaction, client service levels, standard of file completion and/or other elements of KPI performance. Importantly, behaviour should be a key element.
  • It defines and reinforces the behaviours, values and ultimately the culture of the firm.

If this is a route you feel you should consider (or you have an existing  process which you don’t feel works well), the next couple of sections will explore what to do, or not.

What goes wrong?
Here are some key thoughts:

  • No integration with T&C 1-2-1 meetings and KPIs. Performance management is seen as stand-alone when it should be integrated in with these existing measures and not be something that is quite separate.
  • It becomes a bureaucratic paper-filling exercise which is seen as being irrelevant. As is often the case, less is more so keep it simple.
  • It is imposed on staff or is seen to be about criticising them.
  • People are given vague performance objectives with their role which make it difficult to determine where performance has been satisfactory or not. As a result, it is not regarded as fair.

With the FCA looking more closely at the culture of a firm, having a broader sense of ‘what good looks like’ is a key element of not only how to achieve this, but being able to document it.

What does good look like?
Here are some more key thoughts:

  • There is a clear process which is seen as relevant and understood by all.
  • It is focussed on what both the business and clients need most.
  • The process focuses broadly 50/50 between meeting agreed performance objectives (the ‘what’) and the behaviours shown (the ‘how’). Behaviours can be defined as competencies, behaviours or values – either way, this helps to reinforce the culture you want within your firm. With the FCA looking more closely at the culture of a firm, having a broader sense of ‘what good looks like’ is a key element of not only how to achieve this, but being able to document it.

The regulatory dividend
I would look at this from three different perspectives.

  1. People risk. The FCA expects authorised firms to manage ‘risk’ and be able to demonstrate that they do so. But if you think about what we mean by ‘risk’, a significant element of this for most firms is the risk posed by our people. We can undertake testing, encourage people to take exams and undertake relevant CPD and these all help to mitigate people risk as they demonstrate people have the knowledge to be deemed competent. What performance management has is the potential to go further and demonstrate the individual also demonstrates appropriate behaviours and values. This takes managing people risk to another level. It should also meet the FCA requirement that firms should have the systems and controls which should enable it to satisfy itself of the suitability of anyone who acts for it, and that TCF outcomes are defined and measured.
  2. To quote the FCA Risk Outlook 20143, “Culture drives behaviour – it reflects the underlying values and ‘mind-set’ of the organisation and as such has a great influence on the behaviour of individuals within the firm. The challenge for many is that the components of culture are hard to change. Embedding cultural change across businesses remains a major challenge for Boards and Executives.” An effective and proportionate performance management process can help develop this.
  3. Remuneration and incentives. Ensuring that performance isn’t just measured in terms of income can be used to minimise the risk of dysfunctional client outcomes. This is entirely consistent with a profession that, in some cases, is still evolving from a product or sales-led proposition to a service-led ethos.  If you believe that you get what you reward, then make sure you are rewarding those things most important to your business and your clients.

This final section has looked at some of the key regulatory arguments for having an effective performance management process. But of course many businesses also want to increase their profitability. This is a natural, healthy and understandable. It is also another area where a proportionate and effective performance management process should be able to deliver results.




About Author

Avatar photo

Ian Patterson is a trainer and author. He was one of the first people to obtain the part-MBA qualification 'Advanced Certificate in Coaching and Mentoring' provided by Oxford Brookes/CIPD. He is a Chartered Insurance Practitioner and holds the prestigious CII Accredited Trainer status. Ian has over 34 years experience and launched The Patterson Group in 1995 to offer tailored training solutions and exam preparation resources both to individuals and organisations in the financial services sector. Over 21 years, The Patterson Group have helped over 30,000 candidates nationwide to achieve their CII Diplomas and Advance Diplomas in Regulated Financial Planning and trained 1,000 of people managers. He is also the author of five books including the current CII study texts Senior Management and Supervision (AF6), Supervision in a Regulated Environment (J07) and Long Term Care Insurance (CF8).The Patterson Group is also the leading provider of audio MP3s for exam preparation. Specialties: T&C, supervisory training, senior management training, leadership, adviser coaching, skills, technical and exam preparation. Specialties: T&C, supervisory training, approved persons training, leadership, coaching, skills, technical and exam preparation.

Leave A Reply