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Putting The Non-Executive Director Role Under A Spotlight

Gary Dixon, 17 August 2018

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Regulators such as those in the UK are pushing for tougher corporate governance standards, and that includes the role of non-executive directors. Wealth managers - take note.


The role of non-executive directors in our corporate world is vital and all too easily taken for granted. As regulations continue to tighten, affecting sectors including wealth management, it is smart to stand back and consider some of the issues affecting NEDs and their role. Writing here is Gary Dixon, chair of the Association of Independent Non-Executive Directors (AiNED), the not-for-profit organisation that provides a wide range of support services to iNEDs. The editors of this news service are pleased to share these thoughts and invite readers to respond. The editors don’t necessarily share all views of guest writers.


The UK’s financial services market is under intense regulatory pressure with the FCA telling firms they must improve corporate governance standards.

Asset management boards have been ordered to recruit two independent non-executive directors (iNEDs) to introduce more independence to deliberations and ensure better scrutiny of fund costs. It is a bold move, and one that could well be rolled out across all significant regulated entities within the next five years or so.

Under the new rules asset managers are required to find, appoint and train at least two people capable of judging whether the fund is being managed in the best interests of all investors. It’s no easy task, with commentators predicting that the sector will need to recruit at least 480 people at boardroom level to meet this requirement.

Make no mistake, the regulator is paying increased attention to the internal governance standards of regulated firms. Evidence of this can be seen in the fact that it has opened a record number of investigations recently. Since 1 April 2017 the figure has risen from 410 to 510 in 2018.

The Financial Conduct Authority is also taking a closer look at governance standards, with 61 live cases now compared with just 15 in April 2017. This is now a well-defined direction of travel and all regulated firms should be taking steps now to improve their board standards as a matter of priority.

Should any asset managers fail to act it will, rightly in my view, be forced to move to a majority non-executive director regime. It is a serious threat, and one that should force the sector to take the changes seriously.

The wealth management sector is not immune from the regulatory upheaval. What has begun with asset management will likely expand across all financial markets. 

Now is the time to assess board effectiveness and corporate governance standards to ensure they are fit for practice. There may be areas where you need to make improvements, or where an iNED leading the review may be more effective. Being able to show that you have considered this would be advantageous should the FCA come knocking.

It is imperative that board executives make a clear distinction between a historic non-executive director (NED) and a truly independent NED (iNED).

To comply with the new FCA rules the new asset manager iNED must be demonstrably independent. To underline this, potential candidates cannot have been paid by the fund manager for five years before their appointment, nor have had any business relationship with the fund within the previous three years.

The appointee, says the FCA, must have “sufficient expertise and experience to be able to make judgements” on behalf of the consumer.

Traditionally suitable candidates with “sufficient expertise and experience” have been found from within asset management circles. It has been accused historically of being a nepotistic market, where positions have been filled by friends of the board members.

Now boards will have to need to widen the recruitment pool if they are going to find a suitable appointee. That could open up new opportunities for those looking to step up to boardroom level, particularly for those familiar with wider areas of financial markets.

Becoming an effective iNED is no mean feat. Becoming an asset manager iNED is tougher still. Working with established boards and challenging the norm takes someone with confidence. It requires someone who can take an independent view on the firm’s strategic direction, monitor its performance, and ensure that it is acting with integrity and accountability to all fund-holders.

Firms will be looking for a candidate who acts professionally and with integrity, holds a strong but balanced view. The right candidate will have the ability to stand up and be counted and will not get pushed around easily.

It can be quite difficult for an aspiring iNED to acquire the necessary skills and then, once they have them, to find the opportunity to hone them in practice. A good place to start is by realistically assessing your own skillset and then identifying how to augment it with tailored training or mentorship. 

The financial services sector must do what it can to drive up corporate governance standards. Having iNEDs who are demonstrably independent and with the right balance of experience and skills is absolutely central to this.

If the UK financial market is packed with iNEDs who are consistently trained to a high standard it will give the City added armoury when it comes to competing on a world stage. Furthermore, it will give your clients the comfort and satisfaction that their interests are being looked after properly. That is a very convincing argument. 

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