CHECK AGAINST DELIVERY
A speech by Justin O’Donnell Case
Austra-Oceania Regulatory Summit,
1 April 2022
Good afternoon, men, women and compliance professionals.
Thank you for inviting me to speak at your conference today on regulation. As risk and compliance experts, you all contribute (although generally negatively) to achieving business efficiencies and commercial outcomes.
You understand, as well as anyone, how pedantry, obstructionism and bureaucracy works against the interests of those who pay your salaries. I appreciate that inexperience, and an obvious lack of commerciality, is often the cause of compliance problems, so let’s take this opportunity to move compliance beyond its obvious limitations and address the key issues on which you should be focused.
Without reference to any aspect of my recent regulatory sanctions, but drawing on my extensive compliance experience, I’d like to focus your attention on the following key issues for distribution entities:
- Reasonable steps
- Misaligned incentives
- Re-examining conflicts
My lawyer recently advised me that s961B(2)(g) of some Act explicitly requires an adviser to take “any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interests of the client, given the client’s relevant circumstances.”
Obviously, this duty extends beyond making internal referrals and replacing competitors’ financial products with those we feel are superior or deliver better outcomes. I’ll talk more about the obvious, and profound, benefits of recommending the products we stand behind, but it would be remiss of me not to talk about tailoring advice and address the obvious elephant in the room – fonts.
Make no mistake, your slavish devotion to form over substance is, with respect, our real problem with Compliance.
How can advice be “clear, concise and effective” when it’s printed using Times New Roman font?
How can consumers be confident in their adviser’s recommendations, or obtain their clients’ “free, informed and prior consent” when they’re handicapped by Licensee Standards that mandate Times New Roman or Calibri body?
“Times New Roman is not a font choice so much as the absence of a font choice, like the blackness of deep space is not a colour”
— Matthew Butterick (I don’t know who he is either)
I think that it’s undeniable that Compliance’s focus on fonts (and font size) has been detrimental to the emergence of an advice profession. I have spoken to many advisers (some of whom were subsequently, and unfairly, banned by ASIC) who were adamant that Compliance must have failed their otherwise perfect advice documents on the basis on the SoA fonts (and margin width).
This simply cannot continue.
I appreciate that this type of minutiae is at the heart of the compliance discipline, but it’s holding our industry back, and I urge you to abandon the petty small-mindedness of your craft. The reality is that no one ever reads their Statement of Advice, so Knockout, ComicSans or Wingdings could be used (especially for complex strategies) without compromising client understanding. Other fonts, like Vivaldi, are likely to significantly improve the quality of advice. You could almost sing advice set in Vivaldi.
Experienced Managers, like me, clearly understand that your focus on design (especially compliant fonts) is important to you, but we urge you to demonstrate some flexibility. The law, and commercial reality, demands that a Statement of Advice, although unlikely to be read, must be an attractive and appealing souvenir of the clients’ advice journey.
At the moment, most SoAs are uninspiring compendiums of discovered needs, relevant circumstances, tailored solutions and clearly disclosed costs, conflicts and consequences. If I’ve learnt nothing else from the Royal Commission, and I likely haven’t, I now understand that checklists and mandates lead to box-ticking and poor outcomes.
Things have to change.
The truth is that Compliance care too much about trivia.
Although it may require you to amend your checklists, I urge you to no longer obstruct advisers attempts to produce succinct, easy to understand, and highly personalised advice.
Advice needs “razzle dazzle” and Compliance must finally acknowledge that conformity isn’t necessarily best for our clients.
Despite all the talk about “conflicts-of-interest” (sic), it is concerning that there’s been so little focus on your conflicts, and how they bias your approach and lead to misaligned outcomes.
I’m reliably informed by a former adviser, that ASIC Regulatory Guide 404, and ISO100890, require each Auditor to identify at least 3.6 compliance issues per review. Further, they are required to record a failure rate of at least 8%.
The truth is that Compliance is incentivised, and motivated, not to celebrate excellence but to find failures.
As I understand it, some of you are even eligible for discretionary remuneration if you exceed these rates.
This is unreasonable, and to grade advisers on a bell curve, simply to accord with internal compliance standards is unfair.
I understand that some of you are quite open about this conflict, and disclose it to the advisers you need to fail. I empathise with you, and I understand the way you’ve tried to disclose the conflict to reconcile the conflict between your duty and their interests.
Unfortunately, disclosure is woefully inadequate. Disclosing conflicts, without doing anything to avoid those conflicts, does not adequately satisfy your professional duty.
This must be acknowledged, and properly operationalised, if a profession is to emerge from your industry.
The truth is that Compliance doesn’t understand benefits.
Let me be clear, I’m not talking about your soft-dollar things or the occasional long lunch, I’m talking about your ideological inability to see mutual-benefits as anything other than conflicts of interests and duties.
If I recommend an in-house product to replace a competitor’s product, everyone wins (except our competitors).
As an adviser, I’m more invested in the outcome, and better committed to the implementation of my client’s instructions. The client benefits because all their needs can be satisfied in one place – we’re maximising their time and reducing inefficiencies. They’re also benefitting because, with more members and more sales, our financial resources increase, which makes us better able to satisfy their needs. In the unlikely event that something goes wrong, we can sort out any problems with a minimum of fuss or external involvement. Plus, with their interests aligned with ours, they’re unlikely to worry about leaving or complaining.
It’s a win-win-win.
If everyone benefits, including the client, how can there be a conflict?