“Just tick your boxes and get out. You’ve wasted enough of my time”
— Adviser X, another satisfied customer
The fourth article in our series focuses on the practical application of compliance principles for new compliance officers in Australia. For clarity, just last week another financial services provider complained that, in his experience, most compliance people don’t understand what they’re doing and can’t think beyond their licensees’ policies.
It is, unfortunately, a common complaint. Even more unfortunately, it’s often an accurate critique.
We’re firm believers in context and we passionately argue that understanding the theory behind compliance is important, but being able to apply this knowledge in real-world scenarios is where true expertise lies.
Unfortunately, most compliance people can’t see beyond their own fish bowl. Luckily, after working with over 208 Licensees and reviewing over 18,926 client files, we’re well-positioned to help.
In this article, we’ll provide a detailed guide on how to conduct an adviser review, along with real-world examples and scenarios.
Conducting an Adviser Review
One of the key tasks for compliance officers in the financial services industry is conducting adviser reviews.
For those spared the annual performance and competency review, this involves reviewing the advice provided by a financial adviser to ensure that it complies with the relevant laws and industry standards.
There’s a wide variety of approaches (some of which are even occasionally effective) but for simplicity, here’s a high-level summary of the process:
- Review the Advice: The first step in conducting an adviser review is to review the advice provided by the adviser. This involves checking that the adviser has considered the client’s needs, circumstances and current arrangements, and that the recommendations provided address the identified needs and are appropriate for the client’s individual circumstances. Consider the context of the interaction and the client’s capabilities and needs.
- Check for Justification: If the adviser has recommended a switch or replacement of an existing product, check that this recommendation is justified and properly documented. The adviser should be able to provide a clear and detailed explanation for why the switch or replacement is in the client’s best interest. Consider who really benefits from the specific recommendation provided.
- Check for Proper Disclosures: The adviser should make clear and accurate disclosures in relation to remuneration, associations and benefits as well as address any conflicts of interests and duties. Check that these disclosures have been made and that they are effective, prominent and clear.
- Assess conduct and competency. Identify, or infer from the documents, whether and to what extent the adviser complied with the intent of the law, the FASEA Code and Standards and their professional obligations.
It’s an extraordinarily high-level perspective, but it’s important to agree on the fundamentals before we address the nuances and complexities. We’ve done that, so let’s explore the challenges and considerations of conducting reviews, and how to address them.
Challenges and Considerations
Conducting an adviser review is not without its challenges. Although it doesn’t have to be, a review can be difficult, frustrating and confrontational for all parties. While you might consider a review to be a reasonable step for monitoring and supervising representatives, the representatives themselves may question the value of a performance review performed by someone with little knowledge of them or their role (and little willingness to learn first).
They don’t have to be difficult, but in my experience, here are some common issues that compliance officers may encounter, along with strategies for addressing them:
- Incomplete or Inaccurate Information: If the information provided by the adviser, the advice document or the information on file is incomplete or inaccurate, it can be difficult to assess whether the advice is suitable, appropriate for the client’s circumstances or even in their best interests. Sometimes these errors or omissions can be the result of an administrative error but they can also indicate process failures, competency issues or misconduct. In such cases, take a risk-based approach and don’t rush to judgement; follow up with the adviser and try to obtain the necessary information but don’t accept assertions and reassurances as evidence of compliance.
- Complex Financial Products: Some financial products are complex and may require a high level of expertise to assess. Not every adviser is competent to provide advice on every financial product and strategy. Not many compliance officers have the expertise that covers the entire regulatory field. If you’re faced with information or topics with which you are not familiar, don’t try to bluff your way through – that helps no-one. If you’re not familiar with the product or the specific consequences and implications of the strategy, pause and seek additional training or guidance. If the adviser doesn’t seem to possess the required education, experience or training to provide advice on complex products, it needs to be identified but addressed compassionately.
- Conflicts of Interest: Conflicts of interest can sometimes be difficult to identify and manage. Compliance officers tend to focus on financial conflicts, but the FASEA Code has broadened the field to encompass relationships, associations and personal arrangements. It’s important to have a clear understanding of what constitutes a conflict of interest and to be vigilant in identifying and managing any potential conflicts.
Methodologies and approaches
Conducting an adviser review is a key responsibility for compliance officers in the financial services industry. By following the steps outlined in this article and being aware of the potential challenges, compliance officers can ensure that the advice provided by advisers aligns with the relevant laws and industry standards. I appreciate that although I’ve discussed the nature of an adviser review, and suggested approaches, I haven’t offered a specific methodology despite repeatedly referring to risk-based compliance, evidence-based approaches and the need for a context-specific consideration.
That’s deliberate, because the methodology a compliance officer follows is determined, ultimately, by your Licensee’s risk appetite and culture.
If you’re interested in learning more about what I consider to be the best approach, or would like to utilise our risk-based methodology then reach out to us.
In any event, focus less on formal compliance than on substantive conduct – checklists are fine to ensure a measure of consistency but prioritising formal or technical compliance can sometimes reward malicious compliance and conceal poor advice or misconduct.
In the next article in this series, we’ll delve into the common challenges faced by new compliance officers and provide strategies for overcoming them.