August Addendum: Algorithms, admissions and enhancements
For all the time we dedicate to resetting passwords and changing iconography, the most significant amount of our time is dedicated to enhancing the system.
Our clients, and the Assured Support Team, expect a reg-tech solution that extends its leads over its competitors.
More importantly, it has to anticipate, and exceed, future legislative and regulatory changes.
That's a big job, but we also have to make sure we communicate everything we've done or are in the process of doing. So here we go:
Changes to the methodology
As a result of Assured Support's engagement in a variety of regulatory matters, we anticipated that ASIC had, and would eventually communicate, a higher expectation of advisers than the industry expected.
Essentially, we believed that there was a significant gap between "Licensee requirements" and "ASIC expectations". The gap was only likely to widen once the Royal Commission commenced and advisers would suffer as a result of that difference.
We didn't need to make major changes, but the changes we made did have an immediate impact. "Compliant" advice is no longer classified as "Good advice" and advisers are no longer rewarded for initiatives implemented by their licensee.
An adviser that does nothing more than meets minimal legal requirements, will be recognised as 'compliant' (5) but not commended as being good.
The review still recognises great advice and rewards discretionary efforts but only applies qualitative labels to advice that is legitimately good. The median has lowered as a result, so advisers reviewed in 2018 may have different results notwithstanding that nothing has changed.
We appreciate this may inconvenience some licensees and advisers, but we are confident that this change is less inconvenient than regulatory or administrative action.
For more detail, read the August Update.
A frequent criticism of advisers is their claim that Assured Support don't clearly communicate the specific steps advisers can take to get better results.
The Development Team have addressed this issue on a general level, and we'll supplement it by listing twelve actions/behaviours that you can do to improve your score:
Include in your SoA, a clear exit strategy in the event that changes (tax, legal, economic or political) invalidate, undermine or threaten to invalidate or undermine the strategy you recommended. For example, what should be done if franking credits disappear?
Take additional steps to better understand your client’s situation and relevant circumstances. The information you collect may be accurate, but there may be other areas of their situation that are critical to their chances of reaching their goals and objectives. For example, are there ageing parents who are dependant or need assistance?
Consider your client’s current finances as well as significant future events and expenses that may affect the strategy. A long-term savings plan or regular investment plan can be easily derailed by small and regular changes to expenditure, or an unplanned large expense, such as a holiday or new vehicle. Changes in employment can also mean changes in expenses and income.
Go further in the identification of goals and objectives. Consider the additional concerns of the client outside their retirement or protection needs. Are there any social or ethical issues they want to be involved in, or avoid? Some advisers find these details within the process, but seldom do they integrate this into their advice in an effective manner.
Provide an advice document that is client centric and delivers your advice effectively, in a language that is clear and easy to understand. All too often advice documents are cluttered with useless information and the client is left to find meaning and explanation for themselves.
Educate your clients. Explain things “in terms that (they are) likely to understand”. Discussing a client risk profile is one thing. Properly explaining risk and volatility in a manner that is directly linked with your client and their situation is another. Educating your client about risk will go a long way to assisting them to take control of their financial affairs.
Properly and effectively explain the consequences of obtaining insurances within super for your client. ‘Having insurances within super may leave you with less funds at retirement’ may be true, but it’s broad and doesn’t include all areas of concern. Nor does it address any specific disadvantages of your client. It's critically important that you balance tax-effectiveness, reduced cash flow disruption, additional contributions and the increased risk associated with the strategy.
Ensure your advice considers realistic alternative products and strategies. Products and strategies that will not satisfy the client's identified needs and objectives ARE NOT legitimate alternatives.
Record how you identified and confirmed the client’s objectives, their financial situation and the scope of the advice sought by the client. For example, retain a clear and contemporaneous file note documenting the client discussion.
Document the product selection processes you followed. Demonstrate that you have considered the client’s relevant circumstances and show why it's reasonable to recommend another financial product.
If you've replaced products, show the process you went through that led you to conclude that you needed to replace their products. Include in your file, adequate research on the product/s recommended as replacements and evidence that you have considered client’s existing product/s before switching to a new product.
Show your client the optimal way to achieve their goals while minimising their investment risk. Explain how your recommendation will be likely to meet their objectives without exposing them to either additional risks or significant costs.
We're all about continuous improvement, so here are a few of the things working their way through the queue. We cant give you deployment dates yet, but if you're currently testing the changes, you'll probably have a good idea.
1. An integrated Recruitment and Appointment module - from first contact to reference checking to ongoing reviews.
2. Product training - push out product training and testing as remediation or in anticipation of ASIC's Product Intervention Powers.
3. File variance - subtle changes to the underlying formulae to better differentiate differences between advice and the risks posed by advisers and their conduct. This should facilitate greater differentiation between advisers on similar scores.
4. Progress rewards - little tweaks to the methodology to reward advisers that improve between reviews. To be fair, it will also penalise advisers that get worse between reviews. The changes are unlikely to be material, unless the adviser's risk rating changes profoundly.
5. Recurring issues - we're trialling a new approach to handling recurring issues. They'll still be identified, escalated and appropriately managed, but in a fairer and less punitive way.
6. Nudges - Changing behaviour isn't always the consequence of legislative and regulatory catalysts. Sometimes, little nudges can have a profound impact. We're applying these concepts in a few interesting ways.
7. Pricing - Some licensees want the reg-tech platform without the review modules. These can now be excluded and this significantly reduces the licensing cost.
If you're focused on the future, and want to build a sustainable advice business, you'll want to find out more about openAFSL. You already understand that regulatory technology is critical to you achieving that goal and OpenAFSL is the flexible and intuitive platform you need.
To arrange a demonstration, please fill out the contact form below or email Kye directly. (email@example.com)