AFCA: Old wine in a new bottle?

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. 

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Don't look back in anger: Insights from a former adviser

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.

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Is your Licensee your greatest risk?

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.

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Robots, regulation and redundancies.

Digital advice is the topic du jour for licensees facing rising costs, shrinking margins and a war for talent but it's not a plug and play solution. Despite the appeal of fintech, they'll still face heightened scrutiny, compliance hurdles and distribution challenges. If you're just dipping your toe into the water, this report from Planet of Finance is an excellent place to start. 

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Business tips from fraudsters

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. 

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The risks of risk profiling

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.

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Trust, Culture and Enforcement

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. 

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openAFSL Release Notes

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. 

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TechnologySean GrahamComment
CHANGE: Crowd-sourcing - Hurry up and wait

From 29 September 2017, ASIC will accept applications from intermediaries seeking an Australian Financial Services Licence authorisation to provide a crowd-funding service. In order to better manage the commercial and competitive pressures, ASIC intend to coordinate the applications to ensure the process is fair and equitable. If you intend to seek this authorisation make sure you understand the requirements and the key dates.

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ToolsSean GrahamComment
REPORT: "Are profit based incentives compatible with a risk culture?"

The August 2017 Experimental Research report titled "Are profit-based incentives compatible with a risk culture?" should be required reading for compliance professionals. The Macquarie University/FINSIA publication reinforces observations made about both Wells Fargo and Commonwealth Bank, and makes some interesting observations about culture, attitude and the impact of incentives. 

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ToolsSean GrahamComment
The reg-tech promise

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.

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Why reg-tech matters so much

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.

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Appropriate, and better, risk advice.

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. 

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The perils of safe harbours

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. 

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Complexity, clarity and 'best interests'.

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. 

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Compliance Insights: Lessons from REP515

ASIC Report 515 "Financial advice: Review of how large institutions oversee their advisers" addressed how "effectively Australia’s largest banking and financial services institutions oversee their financial advisers". In a previous article "Who watches the watchers" we focused on cultural and structural reasons for the problems ASIC identified. This post focuses squarely on the practical lessons one can extract from REP515.

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Who watches the watchers?

ASIC Report 515 "Financial advice: Review of how large institutions oversee their advisers" reported on ASIC's review of 160 client files that had previously been reviewed by the Licensees themselves and identified the discrepancies. Conflicts, capability and culture are the main problems but systems, processes and purposes also have significant impact. (Our companion post addresses systems, processes and purposes in more detail)

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