Head to Head: Adviser Reviews

 

TO SEE OR NOT TO SEE. THAT IS THE QUESTION.


In these series articles, two experts provide their (sometimes divergent) views of topics with which licensees and advisers sometimes struggle. They offer their opinions and occasionally some insight. Feel free to join the debate and offer your commentary. 

 

What is the best way to monitor and supervise advisers?

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In my experience, there's no doubt that a face to face review is best.

This is why on-site reviews are the most common type of review that we conduct at Assured Support.

This involves one of our experienced consultants coming to your premises to review both your compliance framework  (the measures, systems and processes you've put in place to ensure your practice runs efficiently) and the advice that you are giving to your clients.

I think I provide significantly more value to my clients by being physically present in the adviser's office.

I appreciate some advisers find it distracting, but many more appreciate putting a face to a name and being able to discuss issues more openly and honestly than can be done by phone or email.

There's a real benefit to the licensee too. Sometimes, being present enables me to identify risks (or anticipated risks) that aren't reflected in the advisers' documents. Conflicting businesses, confusing signage and badly organised and run office should concern each Licensee but these are seldom identified by a remote review.

When I'm in attendance, I can raise any concerns with the adviser directly and often get the clarification I need to finalise my review on the same day. After conducting a sample review of your client files against our proven, consistent and market tested methodology, I can talk the adviser through my observations, explain their consequence and talk about likely remediation options.

I can also explain the benchmarking data and clarify, for the adviser, where they are positioned relative to their licensee and the broader industry. Being present often, but not always, reduces the invariable tension that results from having your work reviewed, assessed and judged by someone you don't (really) know.  

In my view, there's no substitute for an on-site review.


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I appreciate that on-site reviews are the most common way of reviewing advisers, but I'm not convinced it's necessarily the best way to do it. 

Let's ignore the irrelevancies. The methodology is the same for on-site and remote reviews. Regardless of proximity, a good reviewer will make the effort to seek clarification before any report is issued and they'll certainly take the time to ensure the adviser understands the result, observations and implications.

In reality, on-site reviews can be inefficient. They can distract advisers and practice staff and disrupt the ordinarily efficient operation of the business. Reviewers need to be accommodated, supported and baby-sat and they sometimes (inadvertently) disrupt the office flow with the seemingly un-ending stream of Columbo-esque questions.

A remote review removes the 'time-pressure' imposed on the Reviewer to complete the review. More importantly, it reduces the advisers' capacity to influence the outcome of the review. The review can be more methodical, detailed and effective as a result.

You're not going to pick up some compliance risks by doing a remote review, but these types of risks may be better left to Practice Development or State Managers to identify. 

 

What are the key advantages of doing reviews this way?

In my opinion, on-site reviews can provide an added level of flexibility, although it also comes at a cost. Discussions between client and adviser, or adviser and consultant can be quite similar in their make-up, and when parties meet face to face, the level of detail and understanding is often greater. Ultimately, this provides greater potential for empathy,  comprehension and commitment.

Personally, if I am going to be receiving advice, I want to sit with that person and understand them along with the information and guidance I am being given. Providing advice to your clients and receiving compliance advice requires personal and direct interaction that is necessary to ensure incorrect inferences are not made, and an opportunity for a greater depth of discussion. 


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I understand the appeal of on-site reviews; both the reasons Ben has articulated and the call of the open road. Who doesn't appreciate travel, a per diem and exposure to new environments.

I'm simply not convinced that an on-site review is the panacea it is suggested to be. Further, many of those organisations enjoying 'regulatory attention' and relentless media coverage relied on on-site reviews.

A remote review provides a better opportunity for a measured, methodical and independent analysis of the advisers' files. A remote review, despite its limitations, is much more objective. 

In reality, licensees should embrace both on-site and remote reviews and vary the type, depth and frequency of their review methodology according to a range of risk factors. New advisers, struggling or recalcitrant advisers may require the supervision that complements the on-site monitoring, but capable, compliant and committed advisers might need less licensee oversight.

In practical terms, I'd prefer my reviewers spend more time reviewing files and less time travelling to reviews. 

 

What are main disadvantages of your preferred approach?

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Let's be honest. On-site reviews can be painful for everyone. They have the potential to inconvenience advisers and their staff, disruptive the business business and require advisers to (re)schedule their appointments and diary to accommodate the Reviewer. The Reviewer  needs a desk to work from, access to files, privacy, passwords and passes. I understand that and, remember, I've been on the other side of these reviews. Good reviewers, like our team of professionals, understand it's often inconvenient and annoying and we do everything we can to ensure it's not unbearable, bureaucratic and redundant. Ordinarily, we will wait until the end of the review to ask any questions we have and we try not to contact advisers during the review (unless it's absolutely necessary). We understand that the business needs to operate while we're on-site and we respect the adviser's valuable time. 


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Although every adviser review could be done on-site, not every adviser review can be done remotely.

Despite the remorseless advance of technology, some advisers and licensees have record keeping approaches that leave a lot to be desired. A remote review needs all the relevant documents to be available for remote review and assessment. When the client files (hard-copies only) sit on the adviser's desk or in their unlocked filing cabinet, the remote review is going to be less than effective. Even Licensees that have embraced cloud based planning or practice management software don't necessarily have all the documents on-line. Even when they do, they can't always offer a consistent data-management approach.

Phone and email can be efficient methods of conveying information but they can promote misunderstanding, equivocation, suspicion and hostility when the respective parties lack the empathy and experience to achieve understanding. There may be cost advantages to remote reviews, but, if either the Reviewer or the Adviser lack the capacity to effectively, honestly and constructively communicate with each other, or where they are disinterested in doing so, your cost savings are eroded by the time required to manage these 'human elements'.

We try to think of every review as a Performance Review for the adviser; because a bad performance review can materially affect someone's confidence, career, reputation and remuneration we take extraordinary effort to ensure we value empathy as highly as accuracy.

 

How does this approach affect your compliance and governance framework?

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Financial services regulation is complex and frequently changing, and quite often advisers and businesses react rather than prepare. More often than not, Licensees replicate approaches that they've seen others take or simply, and uncritically, continue to do things they way they've always done them.

The problem with these conservative approaches is that they assume the legacy approaches work, and will continue to work. They don't and they won't.

If you think otherwise, review the ASIC website and you'll have all the proof you need  to justify changing your approach.

Despite what some Consultants might sell you, there's no "one size fits all approach". There's no ASIC-approved, Board Certified "X-Lines of Defence" model that guarantees the robustness and effectiveness of your compliance framework.


Eternal vigilance is the price of licensing
— Thomas Jefferson (or John Philpot Curran or Thomas U. P. Charlton or someone else)

Each business should have its own compliance and governance framework, tailored to the 'nature, scale and complexity' of their business but, more importantly, aligned with their model and resources. A licensee operating from a single location and represented by two tertiary-qualified professionals should have a very different approach to a Licensee with weak controls, multiple locations and hundreds of representatives with various capabilities. A Licensee that has embraced technology and mandated systems has different options available to them than one that has not.

When a Licensee is thinking about their approach to monitoring and supervision, they need to have an honest appreciation of their own resources and capability before they even entertain the remote/on-site discussion.

Sean thinks that, even before they discuss monitoring and supervision, Licensees should decide what they're hoping to achieve. He says that, too often, Licensees build impressive compliance frameworks to show how effective their compliance framework is, rather than building an effective compliance framework. If they want an effective compliance framework, they need to look at their intent, the desired outcomes, their capability and resourcing. ASIC Reports 515 and 562 provide compelling proof that an effective framework requires objective, third-party support. 

Instead of wondering whether, and to what extent, how you monitor and supervise affects your compliance framework, think about how, and to what extent, your compliance framework (including your resources, capability and culture) limits and influences your approach to monitoring and supervision.

If you're starting your redesign with a blank sheet, and you want to build an effective framework, embrace variety. Don't lock yourself into a partisan position (remote v on-site) but instead start utilise complementary approaches. Perhaps adapt your approach according to the skills, activity and risk profile of each adviser. Consistent, compliant and capable advisers might be reviewed remotely every eighteen months (with Practice Managers performing 1/2 yearly risk assessments). Newer or less capable advisers might be reviewed on-site every 6-12 months by reviewers that are capable of effectively remediating identified issues and training advisers. A sample of advisers might be randomly reviewed (remotely) once a year based on their product or demographic focus. You might use shadow shopping to ensure you're not over-reliant on document reviews. All first year reviews might be done on site with subsequent reviews done remotely. Failures require another on-site review within nine months. Subsequent failures are managed according to your Remediation and Consequence Management framework. In house resources perform most of the reviews, but external providers review a material sample to provide benchmarking and validation of your internal results.

 

What approach do ASIC prefer?

ASIC's RG 104 outlines a number of general obligations that an AFS licensee must adhere to under s912A(1) of the Corporations Act. Included in these obligations are managerial, operational and supervisory requirements, as well as having adequate systems in place to ensure the adherence to these requirements.

ASIC are quite clear that they expect your arrangements to be appropriate for the “nature, scale and complexity of your business”. ASIC focus on characteristics and effectiveness. They don't prescribe it. How you manage your obligations is totally up to you. Some advisers may respond better to a remote review, but there may be some advisers who need a face-to-face review. In my experience, advisers respond better to a face-to-face review on average due to the fact that a ‘grown-up’ discussion can take place, and any issues can be examined at a deeper level.

Whilst there may be no difference in the methodology we employ, or our approach to your compliance review, how it is received relies on your approach to your compliance obligations, what works best for your business and what your priorities are. All I can say is that I understand my advice a whole lot better when my adviser sits in front of me and lays it all out on the table.


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Both approaches have their own specific strengths and weaknesses. In my experience, the choice is seldom made based on the 'intrinsic strengths' of one over another, but on the basis of the Licensee's resources, capability and control over their advisers.

Licensees with strong systems and effective control and supervision systems can embrace remote reviews, confident that they're mitigating the risks through technology, systems and people. Other Licensees use on-site reviews not only to mitigate their systems and control framework but to ensure that the advisers have direct access to the people that can help them improve their compliance and the quality of their advice. 

ASIC expect Licensees to effectively monitor and supervise their representatives. Consumers expect the same thing.

Licensees no longer have the luxury of 'appearing' to effectively supervise their representatives; they now have to do it or be held responsible for the failures (by ASIC, Fairfax, their shareholders or Twitter). "To See or Not to See" is not a question about how best to operationalise your reviews, it is a more fundamental question about the purpose and effectiveness of your compliance framework.

Do you want to identify compliance issues or Do you not want to identify compliance issues?

It's as simple as that.

Start by asking Why and, once you answer that question, all the other operational questions answer themselves.