It has been almost a decade since the Future of Financial Advice (FOFA) reforms, which introduced requirements such as the Best Interest Duty, banned conflicted remuneration, and required clients to opt-in to ongoing fees. But the flow of change has barely slowed, particularly after the Royal Commission in 2018.

Advisers must better manage business risk to comply with increased regulation.

It is little wonder that even in the midst of the initial COVID-19 pandemic in 2020, advisers still rated the compliance burden as their largest business challenge (68%), according to an Investment Trends survey.

One way to manage these risks is to create key risk indicators (KRIs) that reflect a practice or dealer group’s particular vulnerabilities, according to ASIC. They can be set by categories: product or advice type, adviser profile and customer profile, to match the nature and scale of each business.

Workflows can also assist in ensuring key compliance steps are performed.

Maximising the effectiveness of this framework requires a digital approach that can analyse information and make it easily accessible, as opposed to paper-based records and legacy IT systems. A strong digital record of client interactions and advice builds value and future proofs a business if an adviser wants to sell as they approach retirement.

An advice platform must make compliance as seamless as possible and be easy to implement. Yet a recent ASIC investigation found that more than half of licensees lacked effective processes to remind them when fee renewal notices were due or to turn off ongoing fees.

One of the reasons technology has not been more effective at meeting the regulatory challenge is that many platforms were built for a different era. They were built to drive product sales rather than empower clients to meet multiple goals.

Compliance needs to be deeply embedded within a modern advice process to create the efficiencies that advisers need, so they can spend time with clients and on other revenue-producing activities.

Want to find out more? Our free eBook ‘How to choose the right advice software for your practice’ provides a framework to help Advisers and Practice Owners review their advice technology requirements so they can select the software that is best suited to their needs. Click here to download this now.

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Compliance is an integral part of advice technology.

In this webinar, we show advisers, practices and licensees ways technology can help streamline their compliance obligations, including features and tips to increase visibility, control and efficiency.

Click the button below to watch the webinar on-demand.

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Compliance is a contradiction.  

It’s central to business success but is often a drain on business productivity. It is intended to improve client outcomes, but often just adds to their costs. It grabs plenty of headlines, but for all the wrong reasons. 

And for financial advisers, compliance remains their top concern. Even when COVID-19 swept the world in April 2020, more than two-thirds (68%) of planners cited compliance as their top challenge followed by disruption from COVID-19 (59%), according to research by Investment Trends.  

Advice technology needs to do more of the heavy compliance lifting for advisers so they can concentrate on higher value-adding tasks. Yet technology can only be effective when compliance is baked in from the outset, rather than sprinkled on as an afterthought.  

Seamless processes stop compliance breaches  

Many compliance issues are not the result of poor advice – they’re caused by process failure. It’s impossible to manage the rising regulatory load relying on manual ways of working, given an individual adviser serves between 100-200 clients on average. 

Yet only five years ago, ASIC found monitoring compliance in large institutions was being held back by paper-based record keeping that made information difficult to access, as well as legacy IT systems and other issues. 

More recently, ASIC found that more than half of licensees lacked effective processes to remind them when fee renewal notices were due or to turn off ongoing fees. 

These are basic requirements that suggest technology providers are not looking close enough at advisers’ compliance needs and creating embedded, intuitive solutions.  

Meeting the challenge begins at a holistic level: an advice technology platform should be built around a client’s goals rather than products. Then, consider the practical questions. Compliance should also be reflected at the micro level: are advice dashboards intuitive and customisable? Can client documents be sent easily and tracked through an online portal? 

As an example, Midwinter’s Product Comparison module within the AdviceOS platform is not a compliance tool, but compliance was built into this feature as a core requirement, not an afterthought.

The module provides both product comparisons and projections, allowing advisers to quickly map an approved product list (APL) and perform like-for-like product comparisons across multiple platforms based on a client’s personal needs. 

This allows advisers to show clients that they are acting in their best interests by comparing multiple products across a wide range of parameters.  

Advice technology should automatically pick up genuine breaches  

Australia was one of the first countries to make seatbelts compulsory in 1971. The technology quickly became standard, and most people learned to put their seatbelts on without even thinking about it.  

However, even the best safety systems and processes have exceptions: each year about 30 drivers and passengers are killed and 220 injured who were not wearing available seatbelts⁴. 

The stakes may not be that high in the advice industry, but when things go wrong, technology needs to provide a straightforward way to identify and correct compliance failures.  

The Key Risk Indicator Solution (KRIS) solution in Midwinter’s AdviceOS is one example: a simple dashboard reveals any upcoming or overdue opt-in renewal notices and annual fee disclosure statements. It also helps monitor risks such as products recommended from outside the APL, and RoA vs SoA ratios. 

This type of embedded process enhances compliance and efficiency – one mid-sized dealer group recently estimated it saved the average individual adviser about four to six hours a week. 

No workflow can ignore compliance, but that doesn’t mean it should weigh down efficiency. The right type of technology can embed compliance so that advisers can get on with the job of providing great advice.  

Ekta Desai is a Business Development Manager at Midwinter Financial Services. Click here for more information about Midwinter’s AdviceOS or contact Ekta and the team on sales@midwinter.com.au.

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The unintended consequences of new regulation can be costly, making advice even more unaffordable, says Midwinter’s Ivon Gower. 

Signing documents in person has always been a fundamental part of proving identity – at least until the coronavirus pandemic stopped people leaving their homes.  

The lesson is even good regulation can have unintended consequences under different circumstances. 

Fortunately, governments moved quickly. Laws were reformed so that documents could be signed electronically and signatures witnessed remotely¹.  

This helped professionals such as financial planners keep serving their clients. However, it remains a small consolation as planners continue to battle unintended regulatory consequences. 

Regulatory balance is hard, unintended consequences are the result 

The intention behind regulation has been good: to raise the standard of advice. It’s not easy and finding solutions to regulatory overload isn’t about blame. Many of these issues are truly unintended, and the financial advice industry is not alone in tackling the problem.  

A recent NSW Productivity Commission Green Paper raised the challenge of keeping regulations appropriate in an era of exponential technological change². An Audit Office review found few regulatory proposals put to the State Cabinet justified the additional regulatory burden while regulatory impact statements could be a last-minute, ‘tick-the-box’ exercise. 

But the advice-specific list of regulations and unintended consequences is long and growing. 

A common regulatory response to manage issues, such as conflicts of interest, has been to raise consumer disclosure. However, the evidence shows that few people read lengthy documents³. For advisers, it has just pushed up the cost of producing advice. 

Today, new regulations are causing another round of unintended consequences: the cost of advice continues to escalate, and many advisers are now leaving the industry. Adviser Ratings⁴ estimates about 5000 advisers will depart in the next 1-2 years, which would bring total numbers down to about 16,000. 

New educational requirements have placed pressure on many advisers. At the same time, insurance costs are rising to reflect heightened risk following the Royal Commission and ASIC’s adviser licence fees are set to increase 160% over two years⁵. 

As an industry, we know that moving away from product-led advice and towards strategic advice is the way to deliver better outcomes for clients.  

The question is whether we currently have a high-performance regulatory framework that supports quality advice. 

Time for tech  

These unintended consequences continue to make it harder for the mass market to access quality advice, just at a time when they need it most.  

While the Australian economy is recovering from its first recession in decades, many parts of the community continue to struggle. 

Innovation and new technology should be playing a stronger role in bringing advice to more Australians, but many practices are risk averse in the wake of the Royal Commission. It’s understandable when regulatory costs keep rising.  

It was only two years ago that the Productivity Commission suggested digital advice could help address the unmet massive demand for financial advice⁶. It’s been a long journey, but some super funds are now offering more sophisticated digital advice that tackles a member’s clearly defined financial goals. 

Advisers are also using technology to help clients tackle more challenging financial goals. Tech can do some of the heavy analytical work and then present the results in easy-to-digest form. This leaves an adviser with more time to better understand a client’s competing goals and help them prioritise the right choice for their desired lifestyle. 

Good advice platforms help automate some aspects of advice, such as running clients through future scenarios by quickly showing a range of outcomes based on various choices.  

For example, Midwinter’s MultiGoal tool in our AdviceOS platform allows advisers to run a real-time goal prioritisation session with a client and easily produce a statement of advice. Making this analytical work easy allows an adviser to focus on what clients really want. 

Technology can also help lift some of the regulatory burden from the advice sector. Many advisers are fearful of inadvertently breaching regulations such as the best interests duty.  

The focus often falls on product fees which, on paper, can easily be used to justify product choices. However, fees are just one factor that help generate net returns, which is only one component of helping clients achieve their broader strategic goals. 

The right platform should make it easy to generate, save and search statements of advice and records of advice that clearly outline the rationale for advice. 

The industry may not yet have a high-performance regulatory framework, but technology can automate many of the recurring areas where a practice can inadvertently slip up. For example, Midwinter’s Key Risk Indicator Solution (KRIS) module can reveal issues such as overdue fee disclosure statements and link directly to the right solution.  

The regulatory equilibrium in the advice industry is well intended, but not yet balanced. It’s unlikely to change in the near term, which means technology will have an increasingly important role to play in bringing quality advice to as many Australians as possible.  

Ivon Gower is Head of Product at Midwinter Financial Services. For more information about Midwinter’s AdviceOS visit midwinter.com.au or contact Ivon and the team at sales@midwinter.com.au.

[1] ParlInfo – BILLS : Treasury Laws Amendment (2021 Measures No. 1) Bill 2021 : Second Reading. (2021, March 25). Retrieved from https://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p%3Bquery=Id%3A%22chamber%2Fhansardr%2F14059f01-aa4f-4143-a7dc-fa5f407d6e45%2F0017%22
[2] Green Paper | Commissioner for Productivity. (2021, March 19). Retrieved from https://www.productivity.nsw.gov.au/green-paper
[3] REP 632 Disclosure: Why it shouldn’t be the default | ASIC – Australian Securities and Investments Commission. (2021, March 25). Retrieved from https://asic.gov.au/regulatory-resources/find-a-document/reports/rep-632-disclosure-why-it-shouldn-t-be-the-default

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The advice industry is a challenging business. Make a mistake and the repercussions can be life changing. At best, reputations are shattered. At worst, businesses are closed.

Monitoring the quality of advice while maintaining a profitable business is the tight rope that advice professionals must walk. 

In 2017, ASIC, the corporate regulator backed the rising use of key risk indicators (KRIs) to fulfill that goal. Many larger institutions had already begun implementing KRIs by combining technology and data analytics to pinpoint areas of weakness in their advice.

“We think that the development and use of KRIs, and enhanced records and data management, appropriate to the licensee’s business, can assist in identifying high-risk advisers and affected customers,” the corporate regulator wrote in Report 515.

Yet four years later, many dealer groups and practices are still not using KRIs efficiently to manage their compliance obligations. 

The KRI challenge 

Even back in 2017, ASIC recognised that developing and implementing KRIs was challenging. Institutions were dealing with old and often unreliable data, paper-based records, legacy IT systems that made data extraction difficult, and different data-recording methods.

Since then, the landscape has become even more challenging. The industry has endured a Royal Commission that has led to even more red tape and scrutiny. 

Many of the largest institutions have assessed the ongoing risks as too high and have left the advice space.

Total adviser numbers across the industry have fallen by about one-quarter while many of those remaining are switching to smaller dealer groups or obtaining their own AFSL. 

While this has freed many advisers to take greater control of their day-to-day practices, it also places greater responsibility on them to manage their compliance responsibilities. Get it wrong and potentially large remediation costs can send a practice or dealer group under.

Building the right KRIs 

Some organisations fall at the first hurdle – choosing the KRIs they will monitor and setting thresholds. A simple starting point is to split potential KRIs into four broad categories: 

• Product or advice type. Are advisers delivering a high level of product replacement, recommending ‘one-size-fits all’ advice to clients, or recording a high ratio of records of advice to statements of advice? 
• Adviser profile. Do advisers have an adverse complaints history and adviser audit outcome, high level of recorded incidents, or poor training history?
• Customer profile. Are advisers delivering a high percentage of advice to elderly or vulnerable customers, or those approaching retirement who have an aggressive risk profile?
• Other types. Have there been any judgements against the adviser or is there negative or concerning feedback from the business, para-planners and compliance teams?

The type of KRIs chosen need to match the nature, scale, and complexity of each business, and will also be reliant on the type of data available (more examples are contained in Appendix 4 of ASIC’s report 515). 

Creating a strong compliance foundation with technology

Good digital data, combined with new technology, is clearly essential to build effective KRIs and audits. It is the only way to truly demonstrate compliance with the best interests duty.

Many software providers and fintech start-ups are attempting to answer this challenge but fail because they don’t really understand the needs of advisers, or their solutions are too expensive and hard to implement.

Some solutions are costly to implement and need extensive tailoring. Others don’t work because they must draw in client data from a separate application.

Midwinter’s Key Risk Indicator Solution (KRIS), which forms part of our AdviceOS advice platform, avoids these issues. 

It has a simple, pre-configured dashboard that can be set for an adviser, practice or dealer group. It clearly shows KRIs, such as overdue fee disclosure statements, which link to the action which can solve the issue, such as generating the statement. You can see a demonstration of the system here. 

It is not just possible to implement KRIs effectively – it is best practice for businesses that want to future-proof themselves against regulatory risk – but it takes the right software provider and deep industry knowledge to make it happen.

This article originally appeared in the IFA.

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National financial advice dealer group Wealth Today’s decision to roll out Midwinter’s real-time risk software solution across its 120 advisers has saved it an estimated 30-40 hours a week of manual processing.

“Regulations are only becoming more onerous, forcing advice businesses to become leaner,” Wealth Today Managing Director Keith Cullen says. “This also means that systems need to adapt and work ‘out of the box’ to create true efficiencies.”

Wealth Today uses the Key Risk Indicator Solution (KRIS) through Midwinter’s AdviceOS planning software to ensure advisers are meeting key regulatory requirements such as opt-in renewal notices and annual fee disclosure statements. It also helps monitor potential risks such as products recommended from outside the APL, and RoA vs SoA ratios.

Cullen says that KRIS’s intuitive group-wide dashboard has made compliance stronger and more efficient, with the time required to check critical compliance issues across each and every adviser in the group reduced to about one hour a day.

“Strong compliance is the bedrock of good advice. Technology is the key to making advisers more efficient and productive, so they can simultaneously spend time on revenue-producing activities.”

Wealth Today’s parent company also runs its own practice, SFG Private Wealth, which gives it insight into the practical needs of advisers.

Cullen estimates Midwinter’s AdviceOS software is saving the average individual adviser four to six hours a week to service their clients while still ensuring compliance.

“Advisers that run their business properly and are not exposed to a refund liability or other compliance issue are building value in their business through stringent record-keeping. Midwinter’s AdviceOS software makes that simple, and KRIS lets us support them in that process.”

Tackling the compliance burden was recently rated as the main business challenge of advisers – even higher than COVID-19 (68% versus 59%) – according to a recent survey by Investment Trends.

As large banks and institutions continue to exit the advice industry, many advisers are leaving the industry or choosing to take control by setting up their own independent practice.

Midwinter Chief Operating Officer Jeff Hall said the trend to smaller advice practices made the choice of advice technology more important than ever.

“Advisers need a simple and efficient way to meet their compliance obligations, which allows them to focus on what they do best: spending time with clients to understand their personal goals,” Mr. Hall said. “Technology will continue to play a key role helping advisers build sustainable businesses.”

Midwinter’s AdviceOS KRIS module helps deliver these efficiencies at a practice level and dealer group level.

– ENDS –

Media Contact

For media enquiries please contact:

Deborah Dalziel | Marketing Manager, Midwinter Financial Services

ddalziel@midwinter.com.au

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