Ethics and education are important, but compliance is the biggest weakness in the advice industry


Proposed changes to licensee remediation programs flagged by ASIC early in 2016 will have major effects on many dealer groups’ already overstretched compliance teams, according to a leading advice industry consultant.

In an interview with financialobserver, Reddacliff Consulting principal Tom Reddacliff said the corporate regulator’s proposal that licensees be directly responsible for holding seven years’ worth of client records for each of their advisers would force a shake-up in the way dealer groups managed their compliance.

“Whilst a licensee previously had to keep records of everything, the records tended to be kept at the adviser’s site,” Reddacliff, a former FPA general manager who has also worked in several senior executive roles in National Australia Bank’s wealth business, said.

“Now that ASIC has made it specifically clear that the licensee is completely responsible for holding the records, licensees are going to have to work out carefully how they are going to get data from advisers.”

He pointed out most established practices would be holding at least 500,000 hard copy advice documents at any one time, which often caused capacity issues for large dealer group compliance teams and was likely responsible for the much publicised delays in Commonwealth Bank of Australia’s ongoing advice review program.

“Compliance teams of seven or eight people are lucky to get to 2 per cent [of the documents], so you’re dealing with the ultimate needle in a haystack,” he said.

“This has been a big issue with the Commonwealth Bank – they’ve hired something like 700 people and they’ve done an inordinate amount of scanning [of hard copy documents].”

If the major institutions do not switch to fully automated compliance systems, it is likely any future review programs will suffer the same delays.

“If you want to get a different result, you’ve got to take a completely different approach to how data is stored, managed and extracted,” Reddacliff said.

“Ethics and education are important, but I think compliance is the biggest weakness in the advice industry and stands to make the biggest impact if we can get it right.”

Despite the issues being faced by institutionally aligned dealer groups, he said he believed there was a strong future for the model, particularly for those who could use their scale to provide real productivity benefits to the practices in their group.

“If you’re in a group with scale, you really want that scale to deliver technology and productivity benefits that you can pass on to your customers,” he said.

“The self-employed groups in the majors that crack that, the end-to-end process to the customer, will be very successful in that segment.”

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