Compliance is a key comparison financial planners cite when weighing up the pros and cons of joining a bank-owned versus non-aligned Australian Financial Services licensee, but what does this really mean?
According to James Meade, general manager, MLC Financial Planning and Garvan, adviser profiling is central to the compliance program deployed across National Australia Bank’s self-employed adviser network.
This is a scorecard system ranking individual advisers with a compliance rating of A, B or C based on the outcome of current and previous reviews.
“If they get a ‘C’, there’s a couple of things they really need to fix…there are two or three main issues that they’ve got to resolve,” says Meade.
Receiving a ‘B’ means there are “some opportunities to increase compliance and make changes”.
The ‘A’ ranking is the gold standard. “We make sure it’s a very tough process. To get an A is something a lot of advisers covet, but it’s never easy,” Meade adds.
“If we go through and say ‘based on everything that’s in here, if you’ve got an A, there’s no requirement to go through anything in terms of improving compliance or your processes’”.
Timeframe and implementation
Meade says the system was rolled out about four years ago but has been constantly evolving.
“We’ll try and tighten it and make it harder every year. We’d rather be harder on compliance than softer on compliance,” he says.
Audits of individual advisers are conducted annually by MLC’s in-house reviewers. Where further compliance development is needed, there are practice consultants who sit in the offices of the business and help the adviser make those changes.
In addition to file checking and Statement of Advice construction oversight, they deal with and direct compliance related enquiries and concerns.
“This is overseen by a practice development manager, who is responsible for everything across those businesses,” Meade adds.
High-risk activities
MLC believes the program minimises risk among its authorised representatives by targeting high-risk activities.
“If we thought someone was operating outside the licensee standards, that‘s what we target as a higher risk. We don’t have too many in that category, but if we thought they were, they’d get extra attention,” Meade says.
Providing advice on products that fall outside the MLC approved product list is one example of such an activity.
“We don’t let people go off the [approved product list] APL unless they’ve got an approval from the general manager [of their AFS licensee]”.
Meade refers to life insurance as an example, with six products on the APL. If advisers need to recommend something other than those to a client, they must first outline why it meets the client’s best interests over the MLC-approved products.
“If somebody wants to write something that ‘s not on the APL, I’ve got to approve it,” he says, referring to advisers working for MLC Financial Planning and Garvan.
The external product must also have market research to back it up. “We’re not just going to…let anything through,” Meade adds
Client complaints
He believes the rate of client complaints is substantially lower as a result of the program, though is unable to provide figures to support this.
“I can’t give any hard numbers on it, but we believe the compliance regime and management of risk does give us lower complaints.
“We don’t get absolutely overrun or hit with them,” Meade says.
Positive uptake
“Our advisers who been around for a while, they understand it, they adopt it and look forward to it, knowing that it’s fairly rigorous,” Meade says.
“You do get a few people that, when brand new, say it’s been tougher than what they’ve had in the past.
However, he emphasises it is not intended to be overly prescriptive.
“It’s not there to say ‘gotcha’. If you run a strongly compliant business, you typically run a more robust business that’s going to be more profitable, there’s a good correlation between those.”
