“I’m just a soul whose intentions are good
Oh Lord, please don’t let me be misunderstood”
— The Animals, “Don’t let me be misunderstood”
I may be preaching to the choir, but a lot of advisers have a very negative view of Compliance.
Sure, if they’ve been part of an institutional licensee, that perspective’s probably inevitable.
The reality is that financial advisers, who play a critical role in helping Australian consumers manage complexity, uncertainty and financial anxiety do so in a highly regulated industry while subject to a wide range of regulations and ethical standards. These obligations may be intended to protect consumer interests, build a profession and to maintain professional standards, but they can be, and often are, a source of frustration, apprehension and rage for many financial advisers.
For reasons that escape me, some advisers hate ‘compliance’.
Don’t get me wrong, I understand their position, but I think they lack the proper perspective.
One of the main reasons for their sometimes righteous rage comes down to the reality that complying with the laws is often complex, time-consuming and costly. The mounting costs for responding to shifts in regulatory policy, implementing administrative changes and addressing process inefficiencies imposes avoidable costs that either need to be absorbed by the business or passed on to clients. These financial costs can no longer simply be ignored, or subsidised by product manufacturers, like they used to be.
While many of our clients are excited about the Quality of Advice Review and the lighter compliance burden, others remain focused on the unnecessary and unfair regulatory framework. There is neither a fair nor reasonable proposition and I think that those who most stridently complain about compliance, forget that
The regulations applying to the provision of financial advice has accumulated with rapid succession over a short period of time in response to crises and scandals involving financial institutions and financial advisers.
A cure worse than the disease?
Compliance may be the “medicine administered for misconduct, maladministration and malfeasance”, but despite clear progress, the advice industry isn’t yet fully recovered. The QAR might provide some respite from treatment, but you should note the Government has neither given any indication of their likely approach nor even a timetable for their consideration of the proposals.
We know that advice professionals are passionate about serving their clients, but the ‘rapid succession of legislation over a short period of time’ has led to an affordability crisis for everyday Australians, mounting compliance costs and increasing frustration for financial advisers who would prefer to focus their time and energy on providing advice to their clients.
An additional wrinkle is that the financial firms that are trying to apply legislative updates and changes (without the assistance of a compliance specialist), often find the financial burden and time spent implementing regulatory changes is quite significant; unfortunately for them, the cost of not doing so is even greater. This combination of regulatory inflexibility and prohibitive cost (and commercially fatal consequences) might explain adviser’s hostility, but only if you accept its premise (and many don’t).
Another reason advisers hate compliance is because they see it as a barrier to being able to provide personalised, client friendly advice. It would be frustrating for financial advisers committed to providing the best possible advice to their clients, to be hamstrung and handicapped by regulations hindering their ability to do so. I get it. Financial advice should be clear, concise and consumer-friendly. Instead we’re told that over-regulation and nanny-state legislation have led to enormous, inaccessible and repetitive advice documents that frustrate consumer understanding. Advice, these critics suggest, should provide a client with a clear understanding of their adviser’s recommendation and provide a financial road map that provides clients with the certainty and confidence they need to provide informed consent.
There may be some truth to this observation (but not much). It simply fails to acknowledge either the flexibility the law provides or the conduct that occurred before the imposition of these regulatory requirements. Nostalgia aside, the reality is that (proportionally) there’s far less misconduct and mis-selling now than there was before FOFA (or before the FSRA).
Finally, some financial advisers hate compliance because it’s unnecessary, bureaucratic and burdensome, and they couple this view with an unshakeable belief that complying, or investing in their compliance, doesn’t provide any benefits to them or their clients. It’s a fundamentalist belief that’s surprisingly commonly held. The Design and Distribution Obligations may have reinforced this position and the obligations imposed on advice professionals may, in fact, be “unnecessary, bureaucratic and burdensome”. As someone whose had to help businesses operationalise these elements, this complaint resonates with me but, because I understand the intention, application and ambition of these reforms, I can take a more charitable approach.
An alternate view
“Breaches are real-life stress tests of an AFS licensee’s compliance measures. How [they] respond is not only a reflection of the effectiveness of their compliance measures but also of their culture”
— ASIC Report 594
I think you should embrace compliance but I don’t expect too many conversions on the road to Damascus. Your perspective is entirely valid and I’m not about to dismiss your experience. You may have every reason to hate “compliance” but, in your own interests, I’d urge you to choose love over hate because Compliance (and a commitment to complying with, or exceeding, minimum requirements) is the hallmark of an advice profession; Compliance is the clearest and most objective measure of your experience, education, and expertise.
Compliance is an essential component of the financial services profession. Rather than hating it, it should be embedded within your vision and values and used to create a positive compliance culture.
Financial advisers may hate, dislike or dismiss compliance for a variety of reasons: the additional time and cost it demands, the perceived barrier to providing exceptional advice or the restrictive nature of mandates, or perhaps it’s a historical feeling with an overarching perception of being unnecessary and burdensome. Sadly, some financial advice firms only recognise the importance of compliance when it’s too late.
Don’t be one of those advisers.
Don’t let historical viewpoints, or previous interactions, compromise either your perspective or your professionalism.
By all means critically consider any compliance direction that can’t be simply explained.
Don’t uncritically do things because, you know, “compliance”.
Don’t hate compliance, because it’s compliance people like me that want you to succeed. Sure, some compliance requirements may be pointless, impractical and poorly considered, but don’t throw the baby out with the bathwater.
Compliance, just like you, has changed a lot over the last few years and the unthinking formalism that defined the function has been reinvented as a commercially-focused, strategic discipline that prioritises your clients’ interests (and your sustainability). The compliance function has changed with the times. The real question is not whether you hate compliance, but rather, whether you can recognise that it has changed and whether you now have the maturity to love it (love is a strong word, I will settle for acceptance).
The MAFS examples aside, arranged marriages can work.
If you’re interested in protecting your clients, your business and your livelihood, putting your misconceptions to the side and open to the benefits of a good compliance relationship, please get in touch, we’d love to hear from you.