Like the themes alluded to in the title of Bob Dylan’s classic song, our industry is undergoing a period of overwhelming change. The last few years have seen the introduction of an ongoing cavalcade of increasingly complex regulatory and best practice requirements. Amongst all that change (and proposed change) one thing remains constant: a savvy business can generate value from what others consider to be things “they just have to do”.
While complying with increased regulation is often synonymous with increased costs (administrative or otherwise), it can also have significant positive impacts on business, if leveraged properly. That’s right, regulatory compliance does not necessarily only have to be a cost centre for a financial services business. Anecdotal evidence suggests that a culture of good compliance can reward a financial services practice by adding value where it counts most; its bottom line.
Increasing efficiencies
A good compliance culture entails developing good policies, processes and practices which are usually central to meeting the licensing obligations that apply to Australian financial services licensees. These same policies and processes can also be leveraged as the foundation blocks for good, strong systems that assist licensees to deal with their back office functions and client engagement. The resultant time and cost savings can be immense.
Take for example, the client engagement process an adviser employs with their clients. Ideally this process requires a systematic approach to obtaining the client’s details, their goals and objectives and how they would like to achieve those goals and objectives, much like the first four safe harbour steps prescribed under the Corporations Act 2001 best interests duty. It stands to reason that a licensee could build their client engagement process in a manner that reflects and addresses those relevant safe harbour steps; effectively ‘killing two birds with one stone’.
Compliance works in tandem with the risk management function within a financial services business – this means one normally overlaps and effects the other. It is only natural then that robust compliance processes can often act as a trigger for licensees to scrutinise certain aspects of their business and plug any gaps in process or manage emerging risks accordingly. For example, a regular client review may be the catalyst for an adviser to update their previous advice to a client to ensure it remains in the client’s best interests as opposed to potentially being forced to revisit said previous advice as a result of a client complaint down the track.
Similarly, a licensee that conducts regular periodic assessments of its compliance policies and processes is more likely to be able to identify and deal with issues facing its broader business proactively compared to one that does not (for example a regular review of a licensee’s breach register may disclose a systemic breakdown in a licensee’s process that if not remediated appropriately, could result in serious repercussions).
Brand protection and growth
Reputational risk is one of the key risks faced by financial services providers regardless of size or market share. Whether we like it or not, we live in an age where it has become easier for people to vent their frustration or dissatisfaction with the service they receive. To put things in perspective, the Financial Ombudsman Service Limited recently reported that it received just over 8,000 complaints in the first quarter of 2014 (an increase of 6% over the same period last year). These days one does not even have to leave one’s house to lodge a complaint – it can be as simple as entering a few keystrokes on a keyboard.
Likewise, it is also similarly easy for potential clients to conduct due diligence on a potential service provider before taking the plunge. It is after all human nature to expect the best quality service and/or products our money can buy – surely we can’t fault our clients for having similar expectations of us? Imagine the impact on your business and you if a disgruntled client decided to post negative comments about your service on an on-line forum or a blog site.
Disputes can not only have a major impact on a licensee’s business in terms of direct financial costs such as the compensation payments and the ongoing management of a dispute but also indirectly such as the opportunity cost of the time spent dealing with a dispute. Further, the intangible costs to advisers who are the subject of a dispute, such as increased stress levels and an adverse impact on personal relationships can be innumerable. Bad press can also be a very real barrier to the growth prospects of a licensee’s business.
The key for licensees ensuring a positive outcome for their business is being able to effectively demonstrate how well they have complied with the relevant obligations. A surefire way of doing this is to have clear, detailed and compliant advice documents (including client data collection forms, risk profiling questionnaires, statements of advice/records of advice etc.). Good record keeping practices are also paramount to defending a dispute – in my experience, disputes can often turn on the existence or otherwise of clear, detailed and contemporaneous file notes. Remember the old adage, it is not what you know but what you can prove.
Being able to do so effectively at an early stage of the dispute process (for example through a licensee’s internal dispute process) may give a licensee a greater level of control over the outcome of the dispute and in return potentially reduce the pain that would most certainly ensue otherwise.
However, the benefits to a licensee do not end there. Conversely, poorly managed complaints or those which a licensee has ‘lost’ can often also adversely affect the value of a licensee’s book of business and the cost of its professional indemnity insurance.
Certainty
Much like in life, businesses also benefit from having certainty that they’re on the right track. Having a good compliance culture assists in reducing some of the ambiguity that may otherwise exist, thus allowing licensees to focus on their core business of successfully servicing their clients’ needs.
Consider a situation where you provide life risk advice to a client and you are satisfied that the level of cover you have recommended is sufficient to enable the client to discharge their liabilities in the event of their untimely demise and that the client can, in fact, afford to pay for the recommended level of cover. Surely the comfort of knowing the recommendation is in the client’s best interests is priceless?
Think back to when you had your last compliance review and how the results of that review made you feel. For the licensees that received a ‘clean bill of health’, did you go about your business feeling a sense of comfort? Perhaps even a sense of elation? Did you notice a resultant positive impact on your business?
Thinking of compliance as an investment (albeit a necessary one) is more likely to allow a licensee to unlock the associated value proposition and enjoy the benefits that flow on sooner. Often, all that is required for this to occur is a change of perspective.
The good news is that licensees do not have to navigate the path of good compliance alone. Remember, you have a great resource in the form of your compliance professional(s) to assist you along the way. Who better to partner with than someone who is a compliance subject matter expert and also knows your business well? The possibilities as they say, are endless.
