If you are an AFS licensee and you are trying to find an adviser audit or review solution for your advisers, then read on...

• The problem with many adviser reports
• Our adviser coaching solution
• We can also save you time by preparing a coaching strategy
• What does the law say about adviser reviews or adviser coaching?
• What does ASIC say about adviser reviews or adviser coaching?
• What is the purpose of an adviser review or adviser coaching?

 

The problem with many adviser reports:

For some time now, we have been getting feedback from financial services advisers that they are not happy with adviser reviews being offered by some compliance training organisations. They say the reports:

• are often very lengthy and not helpful. A large amount of management time is taken in considering the reports and potential breaches;
• some advisers feel they receive limited value from the reviews;
• a more strategic approach would be more helpful than a report which attempts to cover all regulatory obligations.

Do you ever feel like this?

 

Our Adviser coaching solution:

We coach your advisers for half a day, and provide a bite-sized, 4-5 page report afterwards. The coaching service will identify any breaches of your licence, and will focus on key issues as determined by you. For example, for one licensee, our reviews are targetting 3 "big ticket" items, namely:

1. Is there a reasonable basis for their advice?
2. has the adviser met the replacement of products requirements? and
3. has there been full and proper disclosure?

 

We can also save you time by preparing a coaching strategy

If you (the licensee) have a number of advisers, Compact can work together with you to create a strategic representative coaching plan. We work with you to set goals for a time period and develop strategies for achieving these goals. Features of plan may include:

• adviser training and adviser reviews will be targeted towards the achievement of these goals;
• adviser input will be included when preparing the plan and, in this way, advisers will take ownership of the process;
• matters covered during the review and the resulting report will depend upon the goals that are set for the plan. However, the guiding principles will be that the report is to be bite sized, focussed, and contain clear and unambiguous recommendations and breach identification;
• adviser reviews will take place once a year, with the whole range of compliance issues to be covered over a longer period;
• in addition to coaching that takes place during the review process, coaching/training sessions can be held in each state, targeting common issues that emerge from the reviews;
• Compact can take over administration of the reviews - (the logistics of organising the reviews, etc) and will liaise regularly with you;
• advisers will be informed well in advance of their review and will be aware of the goals and purpose of the review;
• to the extent possible, technology will be used to prepare for the reviews to save time at the adviser's office. For example, if SoAs can be viewed 'on line' a number of SoAs for each adviser can be reviewed before attending on the adviser;
• a summary report will be provided to the monthly Compliance Committee meetings, together with suggested remedial actions;
• at the end of the specified period, a comprehensive review of the process will be conducted to measure whether the goals for the specified period have been met and to provide a needs analysis for the next period.

This targeted approach to compliance should take less of your time and be more effective in achieving desired adviser behavioural outcomes.

Compliance is about effective business processes that work for the business, but that also comply with the business's legal obligations.

 

What does the law say about adviser reviews or adviser coaching?

The general obligations on licensees are set out in Section 912A of the Corporations Act. The most directly relevant to adviser reviews are:

• 912A(c) - take reasonable steps to ensure that your representatives comply with the financial services laws;
• 912A(d) - have available adequate resources (financial, technological and human resources) to ... carry out supervisory arrangements; and
• 912A(f) - ensure that its representatives are adequately trained, and are competent, to provide the financial services authorised to be provided under the licence.

The legislation is not prescriptive about how a Licensee meets these obligations. There is no statutory requirement compelling Licensees to conduct an annual compliance audit of advisers, synonymous with the obligation to have an ASIC registered auditor conduct a financial audit of Licensees.

 

What does ASIC say about adviser reviews or adviser coaching?

In deciding how to meet its statutory obligations, a prudent licensee will pay close attention to the various statements of ASIC, since it is ASIC that, for practical purposes, is the policeman. ASIC's views are made known in a variety of ways including: regulatory guides, answers to frequently asked questions, media releases and its views expressed in enforceable undertakings. A prudent licensee will also take into account industry practice. In any action for negligence, industry practice is important objective evidence about what actions are expected of a reasonable licensee.

ASIC Statements relevant to a consideration of an approach to adviser reviews include:

• Licensees are expected to have adequate measures, processes and procedures in place to monitor, supervise and train representatives as part of their overall compliance arrangements (RG164.59).
• The resources and arrangements in place must be appropriate having regard to the nature, scale and complexity of the Licensee's business (also RG164.59).
• The current AFSL application does not ask how frequently representatives will be reviewed. Rather, it asks: "Do you have documented processes to supervise and monitor your representatives to ensure they comply with their obligations under the law?"

We would expect that when applying for your AFSL, the proofs may have provided some indication of the anticipated regularity of the adviser reviews.

 

What is the purpose of an adviser review or adviser coaching?

Adviser reviews conducted by a licensee should be part of an overall compliance strategy - not isolated, stand alone events. In this way, they are fundamentally different from, say, a surveillance audit conducted by ASIC. They have a different purpose. A surveillance audit is to check whether a Licensee is complying with its obligations at a point in time with a view to possible enforcement action. A Licensee's adviser review, is part of a strategy for achieving compliance.

A recognition of this difference enables a different view to be taken to the development and implementation of the adviser review process. A number of things follow:

• not every potential breach needs to be covered in the one report;
• the report can be focussed on the particular objectives of the Licensee's compliance program;
• advisers can be informed in advance of the strategic objectives of compliance for the relevant period, what the reviews hope to achieve, and be provided with notice of the reviews;
• some aspects of compliance (for example, appropriate labelling, business documentation) can be dealt with outside the review process, using online access and signing off procedures;
• once the bases have been covered, some compliance matters don't need to be tested multiple times;
• a comprehensive 'tick the box' approach to the compliance review is not necessarily the most effective way of achieving the objective of the review (which is to educate and to motivate in targeted areas);
• the resulting report which is produced can be shorter (4-5 pages), but more targeted, and can provide recommendations for achieving the compliance goals and whether any identified breaches should be reported (although the ultimate assessment and reporting to ASIC, should that be necessary, of the breach will be the licensee's responsibility);
• the report should work in with the training plan so that common compliance problems can be dealt with in an efficient and cost effective way, perhaps in regional workshops following the reviews.

The ideal compliance activities are those that build and maintain a compliance culture in which your authorised representatives are self motivated to conduct business in a compliant way. We believe the above approach is more conducive to this than the 'traditional' adviser review because, if introduced properly, the Licensee, the reviewer and the authorised representative will be collaborating in achieving a shared goal.

This type of review also has implications for the qualifications of the reviewer. The reviewer needs to be someone that has a good understanding of the advice process and, in particular, the reasonable basis of advice requirement. They need to be able to get a 'gut feel' not based on ticking boxes, as to whether an authorised representative understands what is required by the Corporations Act. Importantly, however, they also need to relate to the advisers and to be accepted by them as someone who has something to offer their business.

 

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If you want more information, contact us.

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