What are 5 compliance mistakes made by AFSLs?

Compliance and risk consultancy Assured Support has pinpointed five common compliance mistakes made by financial advice firms.

Taking a proactive approach to compliance risk management, beyond meeting minimum legal requirements, has become both a “regulatory necessity” and a “cornerstone of ethical excellence”, the consultancy recently stated.

This means instilling a culture of ethical behaviour into all aspects of the risk management process, from client acquisition to ongoing reviews.

However, keeping up-to-date with the changing regulatory landscape remains an ongoing challenge for Australian Financial Services Licensees (AFSLs). As a result, Assured Support observed five frequent mistakes made by advice practices based on more than 21,000 client files it has reviewed.

Lack of tailored advice

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While some advisers may think they are providing advice that is personalised to the individual client, oftentimes they are unintentionally taking a one-size-fits-all approach – such as recommending the same in-house investment product to all clients.

“Compliance isn’t about efficiency; it’s about precision. You need to tailor each bit of advice specifically to the client’s situation,” the firm explained.

“Unfortunately for them, just going through the motions seldom satisfies consumers or regulators – generic recommendations, inadequate discovery, consistent product recommendations, and boilerplate reasoning stand out in advice documents.”

Instead, slowing down and tailoring your advice offering to the client’s unique circumstances will ensure a more precise compliance approach.

Overlooking recordkeeping

Advisers may forget to document records or provide complete notes after client meetings, which can become an issue if ASIC checks for clear records of advice in the future.

“Make it a habit to document everything immediately. Don’t wait until the end of the day, do it in the moment while it’s fresh,” Assured Support suggested.

Timely file notes can also provide necessary context if there is an issue with advice documentation, such as a statement of advice that does not adequately explain the reasoning for a certain action taken.

Misunderstanding best interests duty

“It seems simple: act in the best interests of the client. But in practice, many advisers need to do better.”

Unintentionally acting on your own preferences and assumptions, rather than in the best interests of the client, can lead to significant legal ramifications, including a ban from ASIC or losing client trust.

To prevent this from occurring, the firm encouraged advisers to ask themselves: “Is this genuinely the best thing for this client?”

Insufficient risk profiling

Rather than handling risk tolerance conversations as a box-ticking exercise, advisers are encouraged to have in-depth discussions to uncover the client’s real attitude towards risk.

This involves asking follow-up questions, understanding the mindset and comfort levels of each client, as well as recognising if there is a disconnect between the indicative risk profile and the risks required to achieve certain goals, the firm said.

Missing regulatory updates

While nearly all advisers would be aware of major reforms changing financial advice laws, such as the Delivering Better Financial Outcomes bill, overlooking minor updates can leave advice firms in a non-compliant position without realising.

“The best way to fix this is to subscribe and stay educated. Regular training, updates, and reviews are essential. It’s not just about doing things right once – it’s about doing them right every time, as the rules evolve.”

For example, ASIC previously called on licensees to assess the accuracy of records about their advisers on the Financial Advisers Register. The warning came after a spot check identified errors and inconsistencies in some of the information provided, the regulator stated.