Compliance Reviews: Livin' on a prayer

Advisers have to realise that the 80/20 rule applies to Compliance Experts too. Most of them are average at best.
— Phil Alexander, CEO Licensing, Bluewater Financial Advisers

Assured Support approaches 'adviser reviews' differently to most compliance 'experts'. 

We do so because we didn't need ASIC Report 515 to highlight the deficiencies, inherent compromises and inherent conflicts at the heart of most monitoring and supervision regimes

That was obvious to us. 

Equally obvious, was the fact that Licensees and Advisers focused on the wrong things, and failed to embed professionalism, ethics and fairness at the heart of their processes.

For over ten years, in various iterations, we've worked hard to develop a credible and fact-based alternative to institutional box-ticking.

Abandoning the bureaucracy and arbitrary classifications so loved by institutional licensees, we pioneered reg-tech and built a consistent and predictable risk and conduct-based methodology that embeds transparency, comparability and granularity.

We appreciate that the "sweet science" of compliance is not for everyone, but everyone can benefit from a little more knowledge. Addressing three "key myths" might not change your life, but it might provide the context and reassurance you need. 

1. My previous reviews were excellent

Woah, we’re half way there
Woah, livin’ on a prayer.
— Bon Jovi "Livin' on a prayer"

We've previously admitted that compliance people - particularly institutional compliance people - often play a significant part in advisers' failures to navigate through dangerous and poorly understood waters.

As a general principle, we place no reliance on previous Licensees' compliance reports UNLESS we know the Reviewer, have tested their methodology and confirmed the terms of their engagement. 

In most cases, since we're only provided with the compliance reports, we only consider them after we've completed our own independent review.

I appreciate many advisers cherish the 'A" rating they received and cleave to that as validation of their capability, competency and conduct ( *REP515* ) but, without being either too critical or too indiscrete, I'd offer my own recent experiences including:

  • The Consulting Firm that ignored significant compliance issues - declaring them "out of scope" - and provided a report that enabled a Licensee to ignore internal advice and become, as a consequence, a former Licensee (Cancellation);

  • The Compliance Team - internal reviewers - who asserted that they couldn't be expected to know the law, they weren't lawyers (Enforceable Undertaking);

  • The Compliance Expert that advised the purchaser of the advice group not to rely on any of his compliance reports - everything was scoped out at the previous Licensee's request (Retired?);

  • The Licensee whose Compliance Manual asserted that every piece of advice was reviewed by external lawyers (Cancellation);

  • The adviser who failed his review on the basis of material issues that were the direct result of relying on advice from his Licensee and their 'Governance Expert'. The advice was deficient (as the Governance Expert later admitted);

  • The Licensee whose Monitoring and Supervision regime (A,B,C and D schema) had the vast majority of their advisers rated A and the balance B (Cancellation). Incidentally, an insurance recommendation that entirely eroded the clients' superannuation in two years, without disclosure or explanation, was rated "A";

  • The Licensee that had SoA's signed off by a "related law firm" that certified that the advice, although lacking mandatory elements (like research, basis, consideration or disclosure) satisfied the 'best interest duty' (Cancellation);

  • The Compliance Reviewer that identified that the advice that cost a client an extra $90 per year to improve their position and satisfy their needs and objectives, was not in their best interests, was contrary to the law and needed to be unwound;

  • The Compliance Manager who failed Aged Care Advice because no investment risk profile accompanied the advice (Enforceable Undertaking);

  • The Reviewers who passed advice that recommended (and executed) a transfer into an in-house platform notwithstanding it was more expensive, had no basis and neither disclosed nor addressed the consequences and implications of the recommendation (Enforceable Undertaking); and

  • The Licensee that provided advice "in their clients' best interests" that, in one case, reduced their ultimate retirement benefit by over $200,000.

I'm not for one moment suggesting that we don't, or can't, make mistakes. 

We can, and have, and probably will make mistakes. The key difference is that we accept this reality. 

We don't presume that our experience, our education or even due care and diligence can prevent errors. So we're up front about our observations and our reasoning, we support our conclusions with reasons and data, and we welcome fact-based discussions about our conclusions.

It's a little sad, but nothing makes us happier than delivering context, data and insights that help advisers produce better advice. 

2. Everyone's a Five

I’m Brian, and so is my wife.”
— Monty Python, "The Life of Brian"

A critical benefit of our broad industry exposure and engagement on both sides of regulatory matters is our willingness to provide honest assessments behind which we stand.

We appreciate not everyone places the same value on honesty and accountability, but we're paid for our opinion.

In my view, honesty is far cheaper than advertising, marketing and remedial PR.

It surprises me that Licensees and advisers that have watched the Royal Commission, read the coverage and skimmed ASIC's reports can accept ASIC's view that 90% of advice is problematic, but still assert that their advice (or that of their authorised representatives) is exceptional.

To be fair, neither our data, nor our experience, confirms the negativity attributed to ASIC. However, neither does it confirm the unrestrained positivity expressed by some Licensees.


In the self-licensed space, most advisers consistently comply with the law and regulatory policy.

They've invested in their reputation, and they engage experts to help them maintain the sustainability of their business.

This is a positive outcome, but it's dangerous, and delusional, to pretend that just meeting minimum legal requirements either proves the quality of their advice or the appropriateness of their conduct. 

"Compliance" and "Quality" are not synonyms.

Our review methodology, distinguishes between the two different measures and provides

  • an assessment of the quality of the advice;

  • an assessment of whether, and to what extent, the adviser meets or exceeds their legal requirements; and

  • a rating that guides the Licensee to better determine the support the adviser requires.

Measuring quality

Mastery is not merely a commitment to a goal, but to a curved-line, constant pursuit
— Sarah Lewis "The Rise: Creativity, the Gift of Failure, and the Search for Mastery"

We're open with our clients about our methodology, and the algorithms and conclusions that underpin it. We'll happily provide them with the context, comparable data and references we think they need to assess our approach, but we appreciate it can appear complex, intimidating and confusing.

At a fundamental level, we use a variety of risk indicators to identify the level of support an adviser requires and represent this on a scale of 1-10. Whether you consider this to be an analogue for risk or an endorsement of quality often depends on the result you receive.

You didn’t identify anything I’ve done wrong. Why am I a 5? How can 50% of advisers be better than me?
— Mr F, Adviser (2018)

In our view, being a 'good adviser' is a qualitative measure that requires you to exceed professional requirements and industry standards.

Under our methodology, an adviser that only meets the MINIMUM legal and regulatory standards should be recognised as being compliant, and competent, but their compliance shouldn't be confused with quality.

Quality is a consequence of consistently exceeding legal and regulatory requirements, industry standards and client expectations.

It requires compliance, but is significantly more. 

In a complex and frequently changing environment, complying with the law is a significant achievement. It should be recognised, but it's only a participation award. 

The more aware and forward-thinking licensees understand the value of our approach - particularly in the current environment and in anticipation of future regulatory activity - but others struggle to reconcile a granular risk and conduct methodology against the positive and unqualified compliance endorsements they can obtain or purchase elsewhere. 

The ASIC media releases, in my view, offer a convincing argument for investing in effective monitoring and supervision, but I appreciate that some people place less importance on effectiveness or sustainability.

Results and ratings

I don't wan't to be indiscrete but I need to address one of the more ridiculous assertions presented to me recently as 'fact' - "everyone is a five". 

You don't need to dive to deeply to understand this assertion. Their simple argument is that we believe that everyone complies with the law, in exactly the same way, and gets the same result.

This is not the place to unpick algorithms, explain the difference between linear, quadratic and exponential measurement or debate the various modifiers that are applied.

I don't intend to highlight the sheer variety of observations or the nuances of a granular evidence-based conduct model. Instead, I'll simply meet emotion and misinformation with facts.

  • Our current data shows that 17.19% of advisers reviewed fail to meet what we consider to be minimum legal and regulatory requirements.

  • Of that number, 4.69% of advisers fail to to meet what we consider to be minimum legal and regulatory requirements on the basis of material, recurring or systemic issues.

  • 82.81% of advisers meet or exceed what we consider to be minimum legal and regulatory requirements (5+). It's not surprising that predominantly self-licensed businesses with consistent processes and structured arrangements comply with the law.

When you pause to consider that 82.81% scored 5+, you should appreciate that, logically, not everyone can be a "5". 

It requires more than minimum effort, but advisers have achieved, and continue to achieve, scores in excess of the median. 

In our experience, even in a predominantly self-licensed community, only a small minority of advisers (approximately 8%) consistently make discretionary, consistent and considered efforts to move beyond simple compliance with minimum standards. 

Finally, in the wake of the Royal Commission, the tide does appear to be turning. 

More advisers than licensees seek our advice on how to improve the quality of their advice and we're happy to help them be better.

3. I'm better than you say I am

I’m just a soul whose intentions are good
Oh Lord, please don’t let me be misunderstood
— The Animals, "Don't let me be misunderstood"


Your result doesn't reflect your competency, capability and character?

You may well be right.

Any review, even one underpinned by a proven methodology and market-leading technology, is a retrospective interpretation of a small sample of data and documents.

It can only consider what you produced, provided and retained.

It places greater reliance on contemporaneous evidence than supplementary statements or assertions. While investment advisers understand that past performance is no guarantee of future performance, compliance experts understand that past performance is the most reliable indicator of future performance. 

Remember, that the only context the Reviewer has is what can be inferred from the documents you produced, provided or retained.

Reviewers will not fill gaps in your process or paper over issues with your advice. They're engaged to provide an objective and considered opinion.

Reviewers can get it wrong.

They can miss documents, misread notes or misinterpret writing. We don't expect advisers to be perfect and neither do we claim to be perfect.

We provide you with a draft report so that you can consider our observations, ponder our conclusions and, when you think we've erred, provide us with the evidence that supports your view.

Where we are wrong, or where we haven't been fair or reasonable, we'll amend our report and admit our error.

Where we haven't been wrong, unfair or unreasonable, we'll at least explain why.

This is the reason why we prefer to discuss our observations with the affected adviser before any report is generated. 

While the review is valuable, the coaching that occurs during the finalisation of the report is an extremely valuable experience.

Take advantage of the opportunity.



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