As with most professions these days, financial advisers are subject to a number of regulations and standards put in place by governments to protect consumers and investors.
Financial advice is a very personal affair, requiring intimate knowledge of a customer’s finances and having a direct impact on that person’s financial future.
Whatever kind of advice you provide, from investments to superannuation. There is a requirement to comply with a range of legislation when offering advice, including legislation under the Privacy Act, Fair Trading, Contract Law and so on.
The Australian Securities and Investments Commission (ASIC) is the chief regulatory body, which can and often does conduct audits of financial advisers to ensure compliance under the Corporations Act.
The penalties for non-compliance can be substantial and current legislation is continually being reviewed with more changes expected. These may include more severe penalites for non-compliance.
So, compliance training for all employees as part of a learning management system is highly advisable if you’re in the business of giving financial advice.
Because the current legislation is not black and white, but more principle-based, you must have processes and procedures in place that clearly demonstrate your compliance.
You are required to demonstrate efficiency in every aspect of your operations and that you are adding value through improved service delivery. One way to do this is to ensure you have iron-clad risk management strategies in place that prove your ongoing viability in any eventuality. Another way is to progressively train and improve the qualifications and knowledge of your employees.
You are required to demonstrate honesty and transparency in your dealings and the best way to do this is to have systems in place that accurately record all financial transactions, including commissions, bonuses and fees, so that were there any conflict of interest, it would be apparent from these records.
You are also required to behave fairly towards your customers and the best way to demonstrate this is to have an effective complaint resolution process in place.
As well as having the policies in place, ASIC auditors will want to see actual evidence of a culture of compliance being practised at every level of your business from senior management to your customer service representatives, so it really pays to have a system in place that maintains a record of knowledge.
A recent inquiry into the financial planning industry has led to Future of Financial Advice (FOFA) reforms being proposed by the government. These proposed reforms that will be amending the Corporations Act include:
- an obligation for financial advisers to act in the best interests of their clients
- an ‘opt-in’ requirement (regular choice by the client to continue using the adviser’s services)
- a requirement for the adviser to provide the client with an annual fee disclosure statement
ASIC will be given increased powers, including the power to ban unethical, incompetent or untrained financial advisers from continuing to practise.
These proposed reforms are expected to become law in early 2012, so if you haven’t already done so, reviewing and updating your compliance measures now would be a wise move. This should include undertaking compliance training for all management and staff.
The aim of these new reforms is to improve the overall quality of financial advice, so such changes should be embraced. Whether you regard them as an imposition or a chance to improve the quality of your industry, they aren’t going away any time soon, so getting your house in order now could save you a lot of money and heartache in the future.