How financial planners can tap into the business value of compliance

The long-term effort required to ensure best practice in your business can reap significant dividends, writes Chandar Varadhan.

Best practice compliance can take time; time that some planners believe would be better spent growing their business by seeing more clients.

However, this short sighted view can lead to problems down the track can quickly undo the good work of an adviser who has spent years growing a business.

Of course, every planner knows and understands that compliance is important. However, taking a more proactive, front-foot approach to compliance can give advisers a competitive edge.

Proactive compliance is an art that combines efficiency (doing things right) and effectiveness (doing the right thing).

Simply put, proactive compliance can be a serious driver of long-term business value and developing a hunger for compliance is one of the cornerstones of a successful practice.

Long-term necessity

Figures released by the Financial Ombudsman Service show that complaints against financial planners are mounting and show no sign of slowing down in the near future.

Of course, against the backdrop of the global economic slowdown, this is not unexpected; when investments decrease in value, it’s natural for people to question the advice they have received.

In this environment, it’s vital to have the correct documentation ready to respond to complaints.

However, in order to do this, advisers cannot only rely on rigorous compliance procedures for just a few months, or from when stock markets started to plunge last year. Complaints mostly relate to advice given many years ago.

Therefore, compliance should not be ignored during the good times — no matter how busy the adviser gets — and must be viewed as a long-term value add for growing a successful and stable business that helps to protect it when times get tough.

Working with your licensee

The relationship between adviser and licensee is pivotal when looking to improve compliance. Getting this right can turn compliance from a necessary obligation to a two-way conversation that benefits all involved — the adviser, the licensee and, ultimately, the client.

Advisers should be encouraged to pick up the phone to compliance staff more often. If left until a problem arises, it may be too late.

Discuss what should be covered in advice documents with compliance staff — not so they can check the strategy, which remains the responsibility of the planner, but so they can help create a clear, concise and effective document which, from a regulatory perspective, ticks all the right boxes.

It’s worth stressing again; this isn’t about compliance staff checking an investment strategy, it is about drawing upon the right resources to produce an advice document that meets clients’ needs, fits with the advisers’ business and also meets regulatory standards.

Compliance staff have value to add during the preparation of advice documents, and it is important that planners become proactive in seeking this counsel and not reject it out of hand as some kind of hindrance to providing good client advice.

The truth is quite the opposite.

Working regularly with the licensee’s compliance staff should also encourage a deeper understanding of the particular requirements of the individual planner’s business, which may call for slightly different systems and procedures to be put in place.

Certainly, a one-size-fits-all approach is oversimplified and counterintuitive. All businesses are different, so compliance procedures must be flexible.

Working with the licensee’s compliance team to make them understand the ins and outs of your operation can help to create procedures that best meet your business needs without being an unnecessary drain on resources.

Empowering staff

If an adviser is committed to building compliance into their business, it is vitally important to equip staff with the tools they need to help the business owner follow the right procedures and remain proactive on compliance.

This has a two-fold advantage; investing the time to train paraplanners may temporarily increase time pressures on the adviser, but in the long run it will free up the business-owner to spend more time with clients.

It’s an effective use of resources within the business and creates a structure whereby the right jobs are done by the right people, at the right time, to the overall benefit of the business.

Secondly, empowering support staff also ingrains compliance within the business. It helps to make it part of the everyday function of an adviser’s practice and, with added resources actively looking at how compliance can assist in the creation of clear and concise advice documents, means best-practice processes can be adhered to.

Arranging professional development days exclusively for support staff can create a number of business benefits, one of which is a greater business-wide awareness and application of compliance.

This structure helps to keep support staff up-to-speed with the latest regulatory changes and ensures compliance not only sits at the adviser level, but spreads throughout the practice.

A hunger for compliance

Businesses that develop a hunger for compliance can gain a competitive edge.

Those businesses that actively seek compliance support when drafting advice documents, view the updating of file notes as a real priority, invest in staff to ensure they’re capable of sharing the compliance workload, are open to feedback and advice and are proactive with follow-up can create a structure where compliance adds value.

The long-term stability and sustainability of the business is improved and the adviser is in a better position to provide best-practice client service.

It’s time for the industry to view compliance as a facilitator of that ultimate aim — best practice in client service — and as a cornerstone of future business success.

Chandar Varadhan is senior compliance manager at Avenue Capital Management.