Financial advisers struggling to come to grips with the Future of Financial Advice (FoFA) reforms that came into effect on July 1 should check out the lessons from similar 2005 reforms in the UK.
According to the director of finance for global risk and consulting firm Protiviti, Richard Mason, a lot can be learnt from the UK experience.
Lessons range from designating a senior staff member to implement the reforms to updating documentation to ensure it complies with the client best-interest test.
“Firms should allocate responsibility for implementing FoFA reforms to one senior member and ensure that the board minutes reflect the discussions and decisions in embedding FoFA changes in the firm’s policies and procedures,” Mason said.
“Firms need to demonstrate that senior management and executive bodies are fully engaged.”
Protiviti’s managing director, Gary Anderson added that firms must ensure control functions are involved at an early stage and at key points throughout the implementation of the FoFA measures.
“Risk and compliance teams need to provide advice on the standards and approaches to be taken,” he said.
“Internal audit teams also need to provide management with demonstrable assurance on the effectiveness of FoFA strategies.”
Sooner rather than later
Mason advised that firms should remember the old maxim: “If it isn’t written down anywhere, it hasn’t happened”.
“They need to ensure adequate audit trails of all decisions taken around FoFA, including the reasoning behind those decisions. Firms will also need to demonstrate the control testing used to gauge the effectiveness of the implementation of the FoFA measures,” he said.
“While the Australian industry has a transition period of 12 months to comply with the reforms, those that take steps now to ensure they can demonstrate compliance with the best-interests test will be ahead of the game.
“Firms need to start building protocols and documentation now so they can clearly demonstrate they have taken reasonable steps to comply with the best-interests test.”
In 2005, the Financial Services Authority (FSA) oversaw significant reform of the UK’s financial services industry.
