Getting the Compliance Gorilla off your back

Brett Walker

SMART Compliance

Understanding the landscape

• Regulation – good intentions, ideology and lobbying

• Reasonable basis and conflicts disclosure

• FoFA – F*** off Financial Advisers

• LIF – Life Insurers Fiddling

Let’s tame the Beast!

Agenda

• Define the Gorilla

• Discuss potential solutions

• Settle on best approach/practice

• Answer any questions

Defining the (evolving) Gorilla

Defining the Gorilla

• What are YOUR main compliance obstacles?

1. Multiple Regulators – ASIC, Austrac, TPB, OAIC, ATO, SWA, FPA, AFA …

2. Voluminous requirements – 000s of pages of rules

3. Limited time to analyse and respond – so much white noise, plus, you have a business to run…

Fundamentals

• Risks you face: My guess of TOP TWO

• Being sued or taken to FOS or CIO – time, stress,

representation & opportunity costs, losing!!!

• Regulator at your door – complaint, random check –

time, stress, maybe a requisition or an EU …

Other risks• Internal fraud• Service delays that annoy clients• Technology failures that create chaos• Staffing problems – clashes, resignations, recruitment• Financial stress

• These are all real problems I have seen advisers trying to deal with over the last 26 years

• Each has a compliance dimension and could create problems for any AFSL

Then …

• All the other compliance stuff

• Registers – CPD, Breaches, Complaints …

• Manuals – Compliance, HR, Process

• Core disclosure documents – FSG, SOA, ROA, FDS, Opt In …

• Lodgements (AFSL Portal, ASIC Connect Portal, TPB, Austrac … and on

and on …)

Have I missed anything?

• Probably

• There’s obviously a lot to think about in the context of compliance risks

• The KEY is how we deal with them

Let’s look at ways to address these risks

Addressing these risks

• Litigation risk

• Systematisation – technology or sweat partner

• Insurance – PII with reasonable terms of cover

• Engagement with clients - education

Addressing these risks

• Regulator risk

• Be confident about your business

• Be patient in the face of ignorance

• Be aware of your rights

Other risks

• Internal fraud

• Segregate duties where possible

• Don’t over-rely on staff

• Keep checking transactions “at source”

• Have fraud cover along with your PII

Other risks

• Service delays – e.g. ROAs, execution hold ups

• Consider alternatives (MDA, SMA, MIS)

• Engage clients in technology solutions

• Monitor outcomes

Other risks

• Technology failures

• IT partnerships

• Redundancy assessments, DRP

• Cyber security measures, including insurance

Other risks

• Staffing

• Written engagement (with legal backup)

• Linkage to processes (KPIs, training)

• Termination protocols

Other risks

• Financial stress

• Awareness of RG166 and your AFSL conditions

• Regular preparation of BS, P&L and CFF

• Identify stress points (e.g. income risk areas)

Other other risks

• Compliance stuff

• CPD – Training Plan + CPD register (incl TPB)

• Manuals? – No Processes that are transparent? Yes

• FSG, SOA, ROA, FDS, Opt in – external review, “opt out”

• Lodgements – Portals for (i) ARs, (ii) FAs, (iii) RG166, (iv) Breaches and

(v) variations or RM changes.

Bigger picture – best approach

Settling on best approach/practice

• KEY ISSUES

• Client understanding

• Advice defensibility

• Back office administration efficiency

Client Understanding

• The key to reducing complaints

• Traditional - Seminars and other communications

• The Future – e.g. Informed Investor – a better way to limit liability?

• Client Engagement in the processes – not just passive

participation, active engagement

Client Understanding – the future

Client Understanding – the future

Client Understanding – the future

Advice defensibility

• Key elements

• KYC – objective and subjective data

• KYS – strategy reflects your competence

• BID – comfort around best interests

• Client understanding

Advice defensibility

• PII cover that is effective

• Understand what PI insurers HATE

• Get your broker to explain what you don’t understand in your policy – e.g. claims notification, APL maintenance

• Help your broker to be your advocate

Back office efficiency

• Automate Advice management systems

• Automate Client relationship management

• Automate compliance and risk management

• Interrogate your data to identify potential issues and opportunities

Client Understanding

• The Holy Grail?

• Literacy levels appalling – 50%+

• Lag to address significant – decades away

• Can it be addressed AT COAL FACE?

• Informed Consent is excellent insurance

Some parting thoughts

Give yourself an annual health check• DIY is fine but there are people who can help

• “Have I given any advice that doesn’t make me entirely comfortable – e.g. due to KYC or KYS concerns?”

• “Am I across my PII policy terms? Do I have a credible story to tell my broker so they can be my advocate at renewal?”

• “Have I identified key risks I face and put in place strategies to effectivelyminimise them?”

• “Can I delegate anything to others to reduce my time allocation to stuff that takes me away from my clients?”

• “Am I building something that is valuable because it is compliant and therefore worth paying a premium for?”

See if the regulator can help

Consider: What is best practice?

• I believe it = what is “most effective”

• Reflects high standards but also efficiency

• Client-centricity (engagement) reduces risk

• So should sensible automation of admin.

AFSLs and the 80/20 rule

• 80% of energy spent on what really counts

• Advice, strategy, engagement

• 20% of energy spent on what must be done

• CPD, Financials, Compliance and Risk Management

Summation

• Use your energy wisely

• Turn that Gorilla into a Chimp …

• Don’t let compliance drive you bananas!

Thank you! Questions?