When Professional Investment Services (PIS) entered into an enforceable undertaking (EU) in 2010, the business was widely regarded as a basket case. The Australian Securities and Investments Commission (ASIC) had a long list of concerns with PIS, its systems and processes, painting a picture of a financial planning licensee seemingly struggling to do even the basic compliance things right.
Earlier this week ASIC announced an ongoing monitoring program (OMP) had ended, and that PIS has been given a clean bill of health. The OMP began in July 2013, more than a year after ASIC received an independent expert’s final report on PIS’s compliance with the EU. The report sat in limbo while ASIC and the independent expert negotiated over the expert’s initial terms of engagement.
The OMP was instigated to prove PIS was complying with the EU, and was overseen by a new independent expert, PricewaterhouseCoopers (PwC). This week ASIC said “the independent expert has reported that PIS has achieved a significant improvement in its compliance and audit functions, along with a commitment to enhancing its financial advice risk management framework”.
“ASIC acknowledges PIS’s commitment and work undertaken and senior executives’ constructive engagement throughout the process,” it said.
PIS had tried before to get its house in order, launching the Building a Better Business project in 2008.
“Unfortunately, none of that had any impact,” says John de Zwart, chief executive officer of Centrepoint Alliance – the parent company of PIS and Associated Advisory Practices (AAP).
A fresh approach to compliance
Getting the business to stop spinning its wheels to getting change to happen came about by taking a fresh approach to compliance – one that de Zwart says could be adopted constructively across the financial planning industry.
“ASIC had been trying to get the business to change direction for a long time,” he says.
“The new management team approached the challenge with a completely different view and it was really a mindset shift. What ASIC’s trying to do is improve the quality of advice, and we, including our advisers, wanted that as well. We’re all aligned; it was just a matter of how we do this as quickly as possible and all get pointed in the same direction.
“It was a real culture shift for us in that quality of advice is really important for successful sustainable practices. We want to see Australians receive high quality advice, consistently and reliably. We all see this as integral to our advisers building successful, profitable and sustainable practices.”
“So the first thing we stopped doing was arguing with ASIC, and really took a different approach.”
De Zwart says that for many businesses, compliance simply means meeting the legal and regulatory minimums, and nothing more. He says PIS started thinking about “how do we start setting what is going to be the best professional standards capability in the marketplace?”
“That’s what we set about trying to achieve – coming at it from that angle,” he says.
Not as a stick, but as a carrot
“We used it not as a stick, but as a carrot [and focused on] the alignment with the adviser to say, if you have got a good, compliant business, it’s generally also high quality, and therefore it’s going to trade at a higher multiple; it’s less likely to have breakages and therefore be more efficient – and therefore more profitable.
“Rather than having this perception that compliance is high cost and a burden on the business, it’s actually turning it around and saying, let’s do it properly. Do it once and do it properly. And what systems and tools and training do you need to make that occur?”
De Zwart says PIS’s approach to compliance now involves auditing just one client file per adviser – but doing it three times a year.
“That was revolutionary for both ASIC and PwC; they hadn’t seen that occur,” he says.
“It actually takes you a long time to analyse what’s going on with a piece of advice. And then it starts to say, what’s happening in the business? If we’re not doing certain things properly, is it because we don’t have well-trained people? Is it because we don’t have the systems in place? Is it the wrong staffing? Do we need a paraplanning service, or an office manager?”
De Zwart says that “more and more often now the adviser isn’t writing the statement of advice”, so piling ever-more compliance on the adviser is not necessarily the answer.
“It’s understanding what it is that that practice has to have to deliver good quality advice,” he says.
Fortunate
De Zwart says Centrepoint was fortunate to also own AAP, which was “already delivering good governance models to a lot of boutiques”.
“We simply adopted a lot of that into the PIS world,” de Zwart says.
“And we also recruited a lot of high quality lawyers, who were industry professionals. They were out of big legal firms; they were out of ASIC; they were out of FOS [Financial Ombudsman Service]. They were experienced individuals.”
Lawyers are “very, very different” to traditional business-development or practice-development managers, de Zwart says.
“I actually find the lawyers are able to get more change in a practice, quicker, because they can argue their case very well, they’re very rational about it – it’s not about trying to be [the adviser’s] friend,” he says.
“It’s taking a very consultative approach and a constructive approach rather than trying to pacify or be the friend of the adviser. It’s saying, let’s just deal with the facts.”
When the EU commenced, PIS had 1354 authorised representatives and today it has about 500. The fall in numbers reflects an unwillingness to humour individuals not prepared to change, and the natural attrition that occurs in any sizeable group of individuals. De Zwart says PIS also lost some good advisers along the way, as the financial planning industry consolidated into institutional hands.
Alternative to institutions
But now, with the EU completed and clean bill of health from ASIC following the OMP, de Zwart says PIS is poised to grow again and to offer itself as a viable alternative to institutional licensees.
“The practices that we’ve got here now all share the view that quality advice and having a professional industry is what we’re all about and the journey we’re on. It sets us up for future growth – so we’ve started recruiting now, and I think pretty much all the independents would be recruiting now. There’s a lot of activity in the marketplace. People are looking for good homes to go to. It’s positioned us as having a very high standard of professional governance and advice governance.”
De Zwart says PIS had one chance to get back to health, and that along the way it has learned things that could be applied more effectively across the wider industry.
“It wasn’t that we were courageous or brave; we just didn’t have a choice,” he says. “We had to do it, and therefore we did it.
“I wish more of the licensees would be brave in their decision making and actions, and be more positive and constructive rather than allowing things to persist the way they’ve always done.
“We want to be seen as a profession, and the biggest thing is not necessarily about improving the quality of education and everything else – yes, that’s important – but the number one thing is to get rid of the negative elements from the industry.
“There’s a lot of good advisers out there, a lot of good practices and a lot of good licensees, and it only takes a couple of rotten eggs to spoil the whole bunch. It’s about how do we get harder on those people? It’s been too easy to get into the industry. And a profession, we should make it harder going forward.”
De Zwart is also keen to deflect credit for the PIS turnaround – he has been in the CEO’s chair only since April last year.
“It wasn’t me. It was people like Rhett [Das], Soula [Cargakis], Jimmy [Wang], Charlie [Huang], Prem [Gill], Tara [Foulks] and Julian [Hunn],” he says.
“If there is going to be any credit, they should be the ones getting it, for that change. They worked day and night to transform the quality of advice. They’re a fabulous team. They’re professionals, they’re wonderful at what they do; they’re great coaches and mentors. That’s what’s really made the difference – the technical expertise, but also the way they have a constructive approach and a supportive approach working with advisers.”
