“Flowers cost less than a divorce”
— Ben Horowitz, “The hard thing about hard things”
If you’re running a financial advice business, you know that compliance is a crucial aspect of your operations. Advice is both highly regulated and heavily scrutinised and the consequences of non-compliance – even for inadvertent or technical failures – can be profound (and are frequently catastrophic).
You may not have become an adviser so that you could devote all your time to poring over regulatory guides, industry standards and policies, but your focus on compliance is essential to protect your business from the legal, regulatory and reputation risks of non-compliance.
“Compliance” is such a big word. It can be complex and a little overwhelming at times, and it can be difficult to know whether the right mechanisms are in place to meet relevant obligations. But practical experience and real expertise provide a certain calmness and confidence.
Unfortunately, by the time you realise you somehow missed the mark, and your confidence was misplaced, it may be too late.
One way to ensure that your business is sustainable and that you can navigate the complex regulatory waters is to engage external compliance experts.
Unfortunately, compliance advice is often a credence good and not all compliance options are equally good. The capability, character and competence of your compliance function matters. Make no mistake, the old days are gone; no longer can the title of ‘compliance manager’ simply be given to someone in admin or responsibilities allocated to the last person to have left the business.
The consequences of non-compliance are simply too significant to take that risk.
For most people, dealing with statutes, regulations, legislative instruments, class orders, standards and regulatory guides does their head in. The patchwork of laws is difficult to understand, more difficult to practically apply, and even more difficult to maintain over the long-term. Ignorance of the law is no excuse, but who has the time to build real expertise? It might be easier if the requirements were stable, but expectations, obligations and best practices seem to change frequently, making it unreasonably difficult for businesses (especially small businesses) to keep up.
The secret to running a compliant business is not to become a “compliance expert” but to engage outsiders that are and have the runs on the board to prove it. It might come at a cost, but it’s essential to have expert guidance and support to help you avoid consequences and outcomes that are far costlier for you and your business.
“It took more than two years and over $200,000 to deal with ASIC . That cost doesn’t even factor in my time, the disruption to my business or the years of worry that I was going to be banned and lose my business. Ultimately, there were no findings, but I just have to sell and get out of advice – it broke me.””
— Stephen, Former Licensee/Responsible Manager
Five common licensee failures
- Misinterpreting, ignoring, or failing to understand legal requirements.
- Failing to implement appropriate policies, procedures, and controls.
- Failing to adequately train and support advisers and employees about “compliance”.
- Failing to monitor, and regularly review compliance processes and systems.
- Not having the (right) resources to properly manage compliance obligations
Six approaches to compliance issues
- Ignore it. It will eventually go away.
- ·Put on another hat and do it yourself.
- Nominate someone within the business who has some experience.
- Hire someone to fill the role.
- Engage external providers for support.
- Engage one external provider for support.
It may be an unpopular approach, but as a Compliancer® (and used to being unpopular), I’m going to immediately strike the first three off the list.
Of course, you could choose to pretend you’re a Bank and entirely ignore your compliance obligations because you’re comfortable with your level of regulatory risk. After all, you’ve been fine so far, you’ve avoided surveillances and never received a claim or complaint.
I’m sorry to disappoint you but you’re not as invisible as you might hope. You’re on the radar whether you want to be or not. You could try to do it yourself, but most advisers and business owners can’t: they simply don’t have enough time to do the job properly. Sure, you can add “compliance” to Darryl’s job, but I’ve found that those businesses that choose to nominate a current employee to do the job seldom have employees with the experience, expertise and enthusiasm to do the job properly.
“Great things in business are never done by one person. They’re done by a team of people”
— Steve Jobs
Hire someone to fill the role
Hire someone. Job done. Easy.
Except, it’s often not.
First, depending on the size of your business, this role could be, or quickly become, overwhelming for a single person (even if they have the experience, expertise, and enthusiasm you need).
Second, it’s often expensive to locate, and recruit, someone with the experience, expertise, and enthusiasm to do the job properly.
Third, your compliance “expert” may not really have the experience, expertise, and enthusiasm you need them to have. The job isn’t done properly but you don’t find out until it’s too late. I routinely trip over compliance consultants that I know, as a fact, are former advisers (who repeatedly failed audits), former-bank executives (that couldn’t even spell compliance) and former Big4 employees whose confident blagging often conceals significant deficiencies of knowledge.
Sure, you might get lucky but banking on a lotto win doesn’t strike me as good management.
And as for the strategy of recruiting a compliance ubermensch, in my view regulatory obligations and expectations have changed so significantly that one person, alone, simply can’t effectively manage a licensee’s compliance arrangements. Your experience might be different, but I think it takes a village.
If you go the employee route, appreciate that your Compliance managers should have, and will need, support, including, for example, other staff and access to external providers. Of course, the amount of support will ultimately depend on the nature and scale[ZG1] of the role, but don’t set them up for failure and don’t forget that their failure, or their failures, affect you more than them.
It’s a self-interested recommendation, but engaging an external provider is the best way to manage outcomes, expectations, and expenses. It’s a fractional cost model that gives you access to proven providers with the experience, expertise, and enthusiasm you need them to have. Better still, they’re objective and often have data and insight from which you’ll profoundly benefit. It’s not without financial costs, but it’s often an approach that also makes your bottom line look better. It’s a contractual and not employee relationship so, when you’re no longer giddy and enamoured with your partnership, you can move on without awkwardness. As time goes on, the engagement can grow, or be refined, according to your actual needs: additional services can be added or removed to support operations, or a certain provider may be chosen for one specific function.
If you take this approach, do your due diligence, and choose carefully. Some providers don’t have the resources or scale to accommodate your requirements, which means additional services need to be obtained elsewhere, which often leads to further problems (like conflicts over interpretations or strategies).
Google the possible provider and pay careful attention to their experience, their resources and any claims or actions against them. Try to look deeper to ascertain whether the compliance team presented in their communications and marketing is a single consultant working part-time from overseas. Location might not be a problem for you but, again in my experience, it’s often the site visits and in-person meetings that provide the most bang for your buck.
Supplement the compliance operations with one external provider
Appointing a single external compliance provider to support your internal compliance manager, is a particularly effective strategy that mitigates potential issues from day one. It increases your capability and ensures that you and your representatives get consistent answers to their questions.
It also removes potential issues and inconsistencies between the licensee functions and ensures the tools and documents relied upon by advisers for guidance are both correct and consistent.
Assured Support has the people, systems and strategies to be able to support your entire business, and the scale of our operation means that we have the data and insight you need and a proven reputation for providing the advice and services you need; from supporting advisers at the coal face to providing legal and strategy advice to providing technology and governance support.
Our experience, expertise and enthusiasm are the reasons you should have us on your team.
Please see here for more.
Why?: The tangible benefits of outsourcing
“The secret is to gang up on the problem, rather than each other.”
— Thomas Stalkamp
Expertise and guidance:
An external compliance expert can, and should, provide specialised knowledge and expertise on financial regulations and compliance best practices. It should go without saying that they should help you understand your obligations and provide guidance on legal requirements, stakeholder expectations, commercial necessities and how to reconcile professional obligations more effectively.
They can, and should, also provide consistent interpretation and understanding of the requirements of relevant laws and regulations.
Your compliance partner can, and should be able to, help you mitigate compliance risks and avoid costly mistakes. [Remember to google their success in this regard]. They can also protect against the risks and consequences of non-compliance, such as fines, legal action, and reputational damage.
Unless they’re a single resource, they should be able to provide training, tools, and support mechanisms to your advisers and employees. This helps you ensure that everyone understands their obligations and has the skills to comply with the law.
Perspective and insight:
The biggest benefit might be that they can provide an independent (and unbiased) perspective on your processes and systems. They can help identify areas for improvement and make your compliance program more effective and efficient.
Fresh insights and ideas can assist you in getting ahead of the curve and staying there, anticipating changes and challenges, and remaining competitive.
They can also provide critical analysis and implementation of appropriate policies, procedures, and controls to ensure compliance. Regular and consistent monitoring of compliance processes and systems can help identify and address any gaps or weaknesses by providing practical solutions.
How to find prospective providers
Check them out using Google (the obvious first choice for all your research needs).
Here are some questions to help you narrow down your results:
- Where have they been published?
- By whom are they currently engaged?
- Do they have a good reputation?
- What’s their public position on key issues?
- What compliance platform do they use?
- What services are scalable or automated?
- Have they been targeted for legal and regulatory action?
- Have they provided services to the Regulator or other relevant bodies?
- Are they credible?
- Who is in their team?
- What is their area of expertise?
- Do they have relevant experience?
- Will they tell you what you need to know or what you want to hear?
How to choose
Scope of services
Examine what is being offered and whether it aligns with what you need. Take the time to engage providers before making decisions. Test their expertise and experience. Ensure the services offered are going to provide value to the business.
Consider whether your needs may change in future. If so, how quickly will your provider need to adjust to accommodate this?
Ensure your prospective provider can move and transform with you.
Is your current provider meeting their agreed service levels? If not, could the prospective provider meet, or exceed, their agreed service levels?
Are their values aligned with yours?
Consider whether the cost is consistent with other providers and if different, discover why.
How will you measure their value? What resources will their services replace?
While cost may not be the most important factor, it must be considered.
Much like advice itself, cost is not always an indicator of quality.
Check us out here, or take advantage of an obligation-free meeting to see if we can assist.