In reality, financial planners and compliance reviewers have more in common than they realise; both understand the value of advice and both are committed to building an advice profession. I know this to be true because I've done both roles. Here are the lessons I learnt when transitioning from financial advice to regulatory advice and compliance. I know we don’t enjoy having our work turned inside out by a stranger at the best of times, and while this may never change, maybe the experience itself can. So don't look back in anger.
Advisers join Licensees for a variety of reasons - price, convenience, shared values and history - but underlying all these is the presumption that the advantages of joining a Licensee outweigh the disadvantages. What if that presumption is wrong? What if your Licensee's conduct is a far greater source of compliance risk to you then your own conduct? This article explores the risks implicit in the Licensee and proposes some practical ways to mitigate those risks.
Risk profiling is a foundation element of most financial planning processes but explaining to a client the consequences of their risk assessment is much more critical than the assessment process itself. In fact, we believe this discussion is crucial to securing a client’s informed consent. Whatever assessment process you follow to determine their 'risk profile', you should assess embrace context, test your assumptions and confirm your clients’ preparedness to lose capital and sacrifice potential income. This article explains why.
The safe harbour provisions were intended to provide advisers with clarity about how to satisfy their best-interest duty, instead they have compromised it. In practice, checked steps and repeated commitments “to act in the client's best interests” are substituted for any real attempt to act in the clients’ best interests. Licensees, and advisers, obsessively focus on the “safe harbour” provisions, and how to demonstrate how their advice is in the client’s best interests, rather than obsessively focussing on providing advice that is, in fact, in their clients’ best interests. Safety, and better advice, requires advisers to set a new course.
If you work in financial services, you understand that bored indifference, feigned interest, and eye-rolling are common reactions to most "Compliance" conversations. The brutal reality is that for most people, Compliance is simply “meh” - uninspiring, undesired and unexceptional. That's a bitter pill to swallow, but changing perceptions starts with first acknowledging the reasons why compliance elicits this reaction.
If you are a compliance and risk professional, you probably often feel different to the people around you. But like millions of other workers, you probably also capped off 2016 with a brief burst of reflection and committed yourself to doing some things differently in 2017. Congratulations for taking the lead. If your champagne-sodden resolutions were no more specific than “have a better year” this article presents three practical steps you can take to significantly improve your performance in 2017.
While it may not be immediately obvious, the embrace of “rules-based compliance” and its obsession with meeting (but often failing to meet) the letter of the law, has also shackled an emerging advice profession to incentives, legacies and values that have restricted its maturation. So what is the better alternative for advisers and licensees?
It's difficult for most people to appreciate the particular and ongoing challenges faced by Compliance Managers in financial services. The role itself, and the contribution it makes to the business by whom they are employed, is often a subject of heated debate. I've been lucky enough to work under leaders whose support and engagement with Compliance was a natural and inevitable outgrowth of their ethical values and deep commitment to the wellbeing of their staff, clients and brand. I've also worked under, and with, a great many people with alternative approaches. This post contextualises the role of the Compliance Managers and outlines some strategies that Compliance Managers can use to help achieve their potential.
Despite the recent coverage, there’s no fraud epidemic in financial services; but it’s inarguable that the increased reporting undermines public confidence in the advice profession. Licensees (and advisers) need to do more to detect, prevent and mitigate adviser fraud. Here are ten "red flags" for which you should look.
Your client’s goals and objectives are the foundation on which personal advice is built. Unfortunately, they are too often confused, used incorrectly or relegated in importance behind a client’s risk profile. In other cases, they’re reduced to generic and undifferentiated statements that lack detail and the reflect the planner’s recollection rather than the client’s relevant personal circumstances. Practically, the most powerful statement of your clients’ goals and objectives are the ones that come from the clients and are recorded in as close to their own words as possible. After all, isn’t the fundamental purpose of personal advice to deliver what the client needs and wants?
The Corporations (Professional Standards of Financial Advisers) Act provides a great opportunity to transform the advice industry by defining what is acceptable Continuing Professional Development (CPD). This articles urges the Standards Body to seize this opportunity and presents seven ways to change CPD to improve adviser capability and competence.
The increased public focus on vertical integration and the dangers of institutional advice has, understandably, driven an increasing focus on independent advice. The challenge, for both consumers and advisers, is that “independence” is neither consistently nor effectively defined. This article considers whether "Independence" and "institutional alignment" can co-exist and asks whether the profession needs to define independence on the basis of outcomes rather than structures.
Most Australians would significantly benefit from receiving financial advice, but relatively few ever receive the financial advice they need. Cost, complexity, inconvenience and apathy all play their part, but consumer apprehension, the fear of being “ripped off”, is also a significant contributor to this outcome. This article won’t provide personal recommendations, but it will outline seven practical considerations that would help identify a better financial adviser. Individually, none of them is sufficient, but together these seven aspects will help weed out the pretenders and point consumers in the direction of the professional advice they need.
On 12 September 2017, ASIC Chairman Greg Medcraft presented at the Thomson Reuters Newsmaker event and articulated his view that ASIC is primarily an enforcement body responsible for promoting investor trust and confidence in financial services. With reference to the ongoing actions involving Commonwealth Bank, NAB and a range of smaller licensees, the Chairman discussed ASIC's priorities and addressed a variety of topics including trust, reputation and culture. This article explores the reasons, consequences and implications of those views.
Culture. Compliance. Misconduct. In a year of scandals, regulatory action and relentless media scrutiny, the failure of licensees – or their highly paid and well-promoted management teams – to honestly assess and check their own conduct is both incredible and disheartening, but it's not just an Australian problem. Focusing on the Wells Fargo scandal this post explores how "culture", conflicts and conformity can compromise ethics, vision and values. It also offers ten (10) tips that businesses can follow to avoid similar public scandals.
On 26 June 2014, The Senate’s Economics References Committee published its report on the performance of the Australian Securities and Investments Commission. The report has been widely covered in mainstream media. Although presented as simply an assessment of ASIC’s performance based on two distinct case studies, the report was highly critical of both ASIC and the Commonwealth Bank of Australia; criticisms relentlessly pursued and compellingly presented by Adele Ferguson in her articles for Fairfax and in her Four Corners’ story. The Committee made 61 recommendations and a number of observations about both ASIC and CBA. This article is a high level review of the more interesting aspects.
Although it’s difficult to assess its impact on the broader community, there is little doubt that Four Corners’ “expose” of Commonwealth Financial Planning generated contemplation, conversation and consternation in the financial services industry. The recent story “Banking Bad” by Adele Ferguson and Deb Masters focused on the sales-driven culture inside the Commonwealth Bank's financial planning division; but it also raised additional questions about the structure and composition of the broader advice industry.
A recent report on the financial services industry noted that while industry executives "champion the importance of ethical conduct …. they struggle to see the benefits of greater adherence to ethical standards". So how do we reconcile statements that "ethical conduct is just as important as financial success at their firm" with acknowledgements "that strict adherence to such codes [makes] career progression difficult." What does this contradiction really mean for Compliance Managers and shareholders?
Struggling to understand how to recognise 'appropriate' risk advice? Worried whether reasonable advice meets the best interest duty? This article tackles these ideas and argues that appropriateness doesn't require an adviser to provide perfect or ideal advice. Nor does it require the adviser to provide the highest level of care. 'Appropriate advice' is fit for purpose and based on the risk professional's consideration of their client's relevant personal circumstances.
Martin Culleton, a Partner with regional law firm RMB lawyers, was the solicitor for Noel Stevens (and then the estate of Noel Stevens) who took on Commonwealth Financial Planning over inappropriate advice, secured a decision in his client’s favour and successfully defended CFP’s appeal against the initial judgment. In this post Culleton talks about Commonwealth Financial Planning v Couper, compliance, conflict and the specific challenges faced by advisers within vertically integrated businesses.
In the context of Commissioner Kell's crusade against commissions, churn and conflicts, risk advisers' processes have started to attract a heightened degree of regulatory attention. Despite the expected legislative roll back of some FOFA elements, regulatory scrutiny of risk advice is only likely to increase in the wake of the New South Wales Court of Appeal's decision in Commonwealth Financial Planning Limited v Couper  NSWCA 444. This article considers what FOS, ASIC and PI Insurers are likely to take from this decision and suggests steps Advisers should take in response.
Despite the inevitable march of consumer technology, I've noticed that many financial advisers still underestimate the role their website plays in reassuring prospects and establishing both credibility and legitimacy. If you're convinced that a compelling digital presence will have little, if any impact, on the growth and success of your business, then enjoy the commercial irrelevancy you've voluntarily embraced. This article examines consumer preferences, social proof and offers five tips to improve advisers' websites.
September release notes for the 'holy grail of compliance systems'. openAFSL frees licensees from the burden of compliance. This update contains the refinements, bug fixes and performance improvements that will only improve your commercial advantage over your less regtech-savvy competitors.
The Industry's eagerness to invest in technological compliance solutions is both commendable and personally appreciated, but a measure of caution is required. The fundamental failure of most reg-tech "solutions" is that they are, in most cases, applications looking for a problem rather than automated solutions to real problems. Solutions should be "compliance driven" rather than "technology driven". In my opinion, reg-tech's purpose is to address conduct risks and regulatory burdens efficiently, effectively and in a way that improves the profitability and sustainability of the user's business.
Forget compliance. Embracing Regulatory Technology is an investment in the sustainability and relevance of your business. Licensees and advisers alike struggle to reconcile compliance, productivity, liability and expense control. It’s a difficult balancing act, but, in a complex and highly regulated market, doing so well is essential for maintaining a successful and sustainable advice business.
Digital advice may be new, but consumers will be happy to know that the obligations that apply to traditional financial product advisers also apply to digital advisers. This article addresses the key compliance issues.
As financial services experts, we know that investors who do not use advisers, underperform when compared to the annual average returns to the market. We also know that studies have also shown that poor investment results are often a direct result of the investor’s behaviour, rather than the performance of the portfolio or its underlying assets. It should be obvious that automating some decision-making processes will help investors make better investment decisions and achieve better outcomes. So how do we explain the industry’s hesitation to embrace digital advice?
In November 2014, we presented on "The Future of Financial Advice" at the ASFA National Conference. ASFA (The Association of Superannuation Funds of Australia) is the peak policy, research and advocacy body for Australia’s superannuation (super) industry.
ASIC's industry funding model commenced on 1 July 2017. Designed to ensure that those who create the need for, and benefit from, increased regulation (and increased regulatory attention) bear the costs of these benefits, it proposes that the costs of ASIC’s activities will be recovered through a combination of "ongoing levies on regulated entities and individual fees for user-initiated regulatory functions (such as licence applications)." The "fees for user-initiated regulatory functions", and ASIC's new Service Charter, are the subjects of this article.
The central plank of the Treasury Laws Amendment (Putting Consumers First – Establishment of the Australian Financial Complaints Authority) Bill 2017 (‘the AFCA Bill’) is the establishment of a single not-for-profit external dispute resolution (EDR) body with a broad jurisdiction. This new super-EDR will hear complaints against financial institutions including Australian Financial Services Licensees, credit providers and credit representatives, superannuation funds (other than self-managed superannuation funds), approved deposit funds, life insurers and general insurers. The ABA thinks it's a great idea but I have some reservations.
The financial services industry has much to recommend it; it’s complex, uncertain, frequently changing, over-regulated and highly scrutinised. These elements make it a challenging and dynamic industry, but it’s precisely these conditions that make the emergence of an advice profession both necessary and inevitable. We're mired in complexity, but perhaps by prioritising outcomes over processes we'll achieve both improved clarity and better consumer outcomes.
The Financial Service Industry's obsession with "compliance" is unhealthy and counterproductive; it creates unrealistic expectations of error-free business, ingrains negativity bias in the corporate DNA and shields management incompetence from proper scrutiny. The solution isn't to abandon regulation but rather to reframe the game around players' responsibilities.
If the purpose of disclosure is to ensure that clients make informed and considered decisions about the recommendations presented to them then disclosure is an inelegant and inadequate solution. This article explores the limitations of disclosure and the practical alternative embraced by advice professionals.
On 14 July 2014, the Labor Party introduced the Government’s amending Regulations in the Senate, confident of their ability to disallow the regulations and therefore derail the Government’s proposed changes to Labor’s regulatory framework. They were mistaken. The Corporations Amendment (Streamlining Future of Financial Advice) Regulation 2014, effective from 1 July 2014, addressed the majority of the Government’s intended reforms and promised certainty in regards to grandfathering, opt-in and best interests. The practical impact of these changes may be somewhat different.
In the last days of 2013, the Assistant Treasurer, Senator Arthur Sinodinos, announced a number of proposed refinements to the some of the key elements of FOFA - including "opt in", Fee Disclosure Statements and Grandfathering. This article addresses the proposals and their likely impact on consumers, advisers and the advice profession.
The Law requires that all AFS Licensees who provide financial services to retail clients must have adequate arrangements in place for compensating retail clients. In practice, this requires Licensees to maintain adequate PII unless an exemption applies or alternative arrangements have been approved by ASIC. This article summarises the review.