“Some mistakes get made
That’s alright, that’s okay”
— “The moral of the story”, Ashlyn Rae Willson / Casey Smith / Noah Patrick Conrad / Finneas Baird O’Connell
Graham’s First Law of Compliance posits that the speed in which an adviser escalates from exasperation to frustration to a full-on hissy fit is directly proportional to the number and impact of the compliance issues identified.
Some advisers’ previous experiences may predispose them to antagonism, defeatism and obstructionism, but aggravating advisers is neither the intent, nor even a supplementary benefit, of their ‘compliance audit’. Instead, the purpose of your advice assurance review is to improve the quality of your advice, help optimise your processes and provide you with the confidence and technical knowledge you need to navigate regulatory complexity.
So how do you optimise the experience, and how do you ensure that you secure the outcomes that properly reflect your competence, capability and character? We could flippantly suggest that if you give great advice you’ll get a great result, but the reality is that process is as important as intent. Outcomes matter too.
Based on my experience, as an adviser and a reviewer, I’d suggest that preparation and consideration is what often separates great outcomes from sub-optimal results.
So let’s approach the review the same way we’d methodically approach a client’s circumstances, and explore those aspects of the review that you can most effectively control.
Preparing for the Review
“Champions do not become champions when they win the event, but in the hours, weeks, months and years they spend preparing for it. ”
— Alan Armstrong
We take a qualitative, risk-based and contextual approach to reviews, but if you are not one of our clients, the format and nature of your advice review may vary significantly depending on its purpose and your licensee’s intent. In some instances, the review might even occur without either your knowledge or your participation.
In these cases, even if your opinion is sought, you often won’t have any input until after the review has been completed. In most other cases, you’ll be able to participate, to varying degrees, in the review process.
It’s always surprised me that advisers, who intuitively understand the value of good relationships, spend so little time to establish even a pleasant professional relationship with their reviewers.
I understand that you may think it’s inconvenient, unnecessary or disrespectful for someone to assess and critically review your advice, but the reviewer hasn’t made that call; they’ve simply been engaged to confirm your competence and assess whether, and to what degree, you’re complying with the financial services laws. Personally, and while acknowledging my self-interest, I’d recommend treating your file review like any other important business engagement or relationship: be prepared, take it seriously, and try to think about the experience from the reviewer’s perspective.
Look after the basics.
Be sure you’re contactable (if not accessible) and know the time, date and location of your scheduled review. Check that you understand what files (and what documents) will be required. Make it as easy as possible for the reviewer to securely access all of the relevant files. More importantly, understand your reviewer’s motivation. First, they want to be able to confirm that you’re complying with the financial services laws (including, but not limited to the Corporations Act 2001, SIS Act 1993, ASIC Act, the Privacy Act 1988 and applicable regulations and regulatory guides. This seems complex, complicated and challenging, and it is. The reality is, you need to assess whether your advice is appropriate, un-conflicted and in your clients’ best interests. And of course – since 01 Jan 2020 – you also need to comply with the FASEA Code of Ethics Standard.
I appreciate all that’s a bit overwhelming, so let’s break it down another way.
Your Reviewer is looking for the “thread” that binds each advice story together: a clear narrative and a golden thread that links client engagement, discovery, documentation, disclosure and consent to implementation and ongoing service. Plus, of course, they’re considering the quality of your process and your advice, and the “x” factor – the culture of your organisation.
So, when I’m reviewing your new client files, for example, I’m examining how you engaged the client and asking:
- How was the advice scoped?
- Is there a clear relationship between goals, objectives and circumstances with the actual advice you provided?
- Was the advice implemented?
- Did the client become an ongoing client?
- Were the fees explained to the client, and fair and reasonable?
For an ongoing advice client, I’m assessing how you confirmed your advice is still appropriate and:
- What process did you have for clarifying or reconfirming the ongoing engagement arrangement?
- Does the file sufficiently demonstrate you didn’t avoid doing important updates to the advice because it was convenient for you not to?
- Were the basics on file (FDS, AML requirements, renewal notices, RoAs and foundation SoAs etc.)?
As a tip for new players, if you have the opportunity to reflect on these aspects before your review, I recommend you take it.
During the review
“Why make enemies when you can make friends?”
— Boyd Crowder, Justified
Reviewers are neither mind readers nor conspiracists; while we’re required to infer, and draw reasonable conclusions from the documents we’ve considered, we want to be fair, clear and accurate. It’s not just defensiveness or pedantry, we expect our reports to be able to endure the same scrutiny we apply to your files, so we’ll seek clarification of key aspects of your files during the review.
I recommend that you respond quickly (and politely) if we ask clarifying questions, or enquire whether you have additional information that isn’t in your file. It’s generally not idle curiosity. Our clarifying questions are often asked for your benefit and to provide you with the opportunity to address gaps and omissions before they evolve into compliance issues. Participate and, if you know something critical is missing from the file, just say so.
Under our process, we’ll typically issue you with a draft report to ensure that you have the opportunity to provide additional information that may shed further light on, or provide key documentation for, issues raised. We see this as a matter of fairness and part of our commitment to equity and efficiency, but it is not a forum for lengthy debate. Please understand that that you’re unlikely to wear a reviewer down or convince them to ignore reality. We don’t have to agree with your opinion, allow for your perspective or concede issues to guarantee your happiness; we’re engaged to provide an objective, expert and considered compliance opinion, and not to simply ‘tick boxes’ and pander to egos. We make evidenced-based decisions, so responses that are succinct (rather than terse or expansive) and responses that are factual (rather than emotional or opinionated) tend to secure the best outcomes.
I’d suggest that you approach any discussion in good faith and assume the same of the other party. This is often what separates the good advisers from the others.
After the Review
Orators use repetition for emphasis. I’m repeating myself because too many advisers prove to be their own worst enemies.
How you react to your review, and the findings in the initial report, is not just an indicator of your competency and capability but can, potentially, also be an indicator of the “culture” of your business or an indicator of how you operate as an adviser. Everyone, including Reviewers, makes mistakes (that’s another reason for issuing draft reports) but how you deal with the mistake, and acknowledge it, is often more important than the mistake itself. Your Reviewer is trying to be fair and accurate; reciprocity is not only both professional and desirable, but in your best interests.
Our reports typically use colour-coded system to identify issues of minor, medium and major consequence. We’ll also identify where each issue sits in your advice process. I recommend you read the report in detail, including all of the references to statute, regulation or best practice. We provide you with hyperlinks to relevant legislation or references; by accessing and reading these, you will build your knowledge of what is, and isn’t, required in the file. Over the long term, you will save time and have more peace of mind.
You may have recommended “action items” or suggested remediation steps that is recommended or required. You may not agree with all of the findings. Although we strive to retain a lens of commercial and operational reality in our file review findings, compliance and sales are markedly different functional aspects of a business. We’ve heard compliance consultants referred to as “business suppression units” or other similar terms of endearment. Maybe: but not all business is good business, and licensees and advisers should be loath to take on business or continue business practices that may cause problems down the track. We are here to help, even if you may not initially realise it!
Therefore, if the final review report identifies issues, we recommend fixing them proactively rather than “arguing the toss”.
We reviewed thousands of files, from several hundred of advisers from over a 120 licensees, and it’s never personal; we simply call it as we see it. It’s also important to point out one undeniable fact: you are responsible for your advice. Far be it from me to cite the rules, but as the FASEA guidance (2019) states:
“You have the primary obligation to regulate your own behaviour to comply with the Code… you cannot outsource this responsibility to your employer, or your licensee, or any other person”.
And this compelling truth, leads us to the inevitable conclusion.
The Unbearable Lightness of Compliance
Ironically, few businesses other than Macquarie Bank have realised how compliance and risk management drive exceptional financial performance. You might not be Macquarie Bank (or have their flair for risk management) but by now, nearly every professional adviser realises that ‘compliance’ is a significant component (“intangible asset”) of their business. More importantly, your ‘compliance rating’ will be a critical element both of your sustainability and your personal brand.
I appreciate you’ve heard this from every empty corporate suit that failed into a compliance or remediation role but it’s time to appreciate that advisers are moving into uncharted territory; institutions are retreating into pure product distribution and Dover showed how vulnerable ‘leading’ advice groups actually are. You’re moving into an environment that’s more attractive to litigation funders, less insulated by professional indemnity insurance and more significantly regulated.
Reference checking of advisers is about to go into overdrive, product distribution is moving into a heightened state of paternalism, codes are enforceable and there’s a new breach reporting regime on the horizon that both mandates reporting to ASIC of a laundry list of common compliance failures and imposes obligations on your peers, your staff, your licensee and your suppliers to alert ASIC of any of your failures.
You may have some valid trepidation about file reviews, but the more prudent course is to embrace them to protect your business, your reputation and your livelihood. You might not like them, but it’s past time to get over that flex. I am convinced that, if you take a more constructive approach, you’ll embrace your file review as an excellent opportunity to improve your practices and processes and ensure your longevity in the industry.
And if you are one of those advisers who already gets everything “right”, use the review to do better.