Financial Planning New Year’s Resolutions
What does 2019 hold for financial planning licensees and practices?
Make no mistake, ASIC’s attitudes will harden as a result of the Royal Commission, and all financial advice businesses should be reviewing their methods so they can clearly demonstrate their ethical and compliant behaviour.
Those of us who have operated in the financial planning industry for a long time know that the vast majority of advisers do the right thing by their clients.
While the Commission has rightly highlighted the misconduct of the minority, we await the final report with some trepidation. That final report is now only weeks away, but it is certain that 2019 will not be a case of ‘business as usual’.
Get ahead of the curve
So, how can firms get ahead of the curve and prepare for the challenges ahead?
Below, we set out a few key areas that will be of importance this year.
1. Future of Financial Advice (FoFA) Compliance
It is important that your compliance processes are robust and have been professionally reviewed, in particular:
a. Conflicted remuneration
Time to review those balanced scorecards! The public perceives the conflicts of interest within the industry as unacceptable, and firms will need to ensure that payments made to advisers remove these conflicts as much as possible. Do your balanced scorecards comply with the conflicted remuneration ban? ASIC’s guidance is, sadly, somewhat vague and in our view, unhelpful. Make certain you understand what is and is not permitted.
b. Best interests obligations
While ASIC’s January 2018 report on conflicts of interest focussed on the Big 4 Banks and their advice licensees, the outcomes are being felt by everyone in the market. ASIC is placing greater emphasis on the requirements of the best interests obligations. As ASIC’s interpretation of these obligations evolves, make sure you keep up to date and understand what this means in practice for your firm.
2. Financial Adviser Standards and Ethics Authority (FASEA)
Understand the changes and the implications for existing advisers and your future recruiting options.
As a new regulator, FASEA has struggled to communicate effectively with the industry. Your firm will need professional help to guarantee you understand the regulations and are able to comply as they come into effect.
3. Breach reporting
The Commission heavily criticised ASIC for not enforcing the financial services regulations in line with public expectations.
Financial planning licensees can expect ASIC to place greater emphasis on breach reporting, particularly in respect of financial adviser misconduct.
Do you understand your reporting obligations in the unfortunate case that something goes wrong? Be one step ahead; make sure you have a proper compliance protocol in place.
4. Succession planning
There has been much focus on firms’ internal processes and compliance, but what about the macro view?
It will be a brave new world as the effects of the Royal Commission and the new FASEA standards are felt.
How will this impact on the value of your business?
How can you attract, retain and reward star performers?
Will your current ownership structure and partnership agreement help or hinder your growth?
You may even need to rethink your own personal plans.
Changes and challenges offer opportunity
There will no doubt be changes and challenges in 2019 that will affect the whole industry.
We expect that ASIC will not be shy in seeking to use any enhanced powers. It will be vitally important that firms wholly understand their existing and new obligations and seek professional advice if in any doubt. There will be big changes but sensible firms that plan ahead should see this not as a threat, but as an opportunity to stand out and rebuild trust with the public.