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Compliance: Professionalism, Productivity and Profit
Sean Graham,
Head of Professional Standards
Financial Wisdom
November 2006
Our Obligations
Provide services efficiently, honestly and fairly;
Comply with your AFS Licence conditions and the financial services laws;
Have available adequate resources;
Maintain the competence to provide the financial services;
Adequately train your representatives; and
Have adequate risk management systems.
The Fundamentals
Language changes perception
Perception affects environment
Environment determines behaviour
The Foundation
“It is necessary for him who .. arranges laws .. to presuppose that all men are evil and that they are always going to act according to the wickedness of their spirits whenever they have free scope.”
Niccolo Machiavelli The Prince (1505)
The Foundation
“It is necessary for him who .. arranges laws .. to presuppose that all men are evil and that they are always going to act according to the wickedness of their spirits whenever they have free scope.”
Niccolo Machiavelli
The Prince (1505)
“A state which dwarfs its men … even for beneficial purposes, will find that with small men no great thing can be accomplished.”
John Stuart Mill
On Liberty (1859)
Building on the foundation: Language, environment and behaviour
Professionalism is a strategic, commercial and aspirational goal.
Professionalism has to a legitimate part of the business’ long term planning
Building on the foundation: Structure and approach
Integrated and collaborative approach
Structured, risk weighted and objective advice assurance process
Integrated and formalised remediation and compliance coaching
Regular communication, advice and training
Structured issues Management and analysis
Principles NOT PrescriptionObserve high standards of honesty and integrity.
Disclose any limitation on your ability to provide objective advice.
Maintain the knowledge and skills to provide competent financial planning services.
Act fairly and reasonably towards clients.
Act with due care, diligence and competence.
Don’t bring discredit to the financial planning profession.
Maintain confidentiality when dealing with clients.
Ensure your conduct complies with the Constitution of the FPA, the FPA’s regulations and professional standards.
Broadening our scope
“A person cannot be said to operate efficiently if he or she has no knowledge, or only a very limited knowledge of the laws which must be followed and which may circumscribe his or her behaviour”.
Re Kippe and ASIC (1997) 16 ACLC 190
Change language, change environment
“Compliance” neither empowers nor motivates
Talk in terms of “Advice Quality” (Consumer dimension) and “Risk Assessment” (business dimension), rather than “Compliance”
Assessing advice quality
160+ questions weighted according to significance
Metric based
Explicitly addresses:
Relevant statutory Laws (Corporations Act, ASIC Act)
Business Rules
FPA Rules of Professional Conduct
Ethics and common law principles
Reasonableness
Quality and impact
“Compliance” is management
Effective “compliance” design manages “bite size” chunks of information
Conduct issues
Process failures
Advice issues
Disclosure issues
Proving change
• Disclosure 78% reduction• Advice 56% reduction• Process 18% reduction• Conduct 65% reduction
Introducing refinements – Delay, Training and Progress – evidences that fundamental cultural change has been effected
Practical steps: 7C’s of effective change
“And one should bear in mind that there is nothing more difficult to execute, nor more dubious of success, nor more dangerous to administer than to introduce a new system of things: for he who introduces it has all those who profit from the old system as his enemies , and he has only lukewarm allies in all those who might profit from the new system”
Niccolo Machiavelli, The Prince (1505)
1. Culture“all progress depends on the unreasonable man” George Bernard Shaw
Although organisations tend to change slowly over time, you can create a dominant culture quickly.
Embed commerciality into your philosophy of compliance: a compliance culture that inhibits long term financial performance is pointless
Integrate social and ethical responsibilities into policies and processes and the decision making process
Recognise that words create meaning
Celebrate and reward professionalism
Move beyond reactive “operational risk insurance” to innovation, value creation and competitive advantage
Fear only motivates to a limited degree and for a limited time
2. Commitment“you can’t learn too soon that the most useful thing about a principle is that it can always be sacrificed to expediency.” W Somerset Maughan
Understand how the organisation sees “compliance”
Speak to advisers
Speak to staff
Read their “Compliance Statement” and “Code of Ethics”
Read industry press
Identify and promote measurable and achievable targets
Embed consistency and transparency into cultural values
Articulate the values around which you can mobilise support
3. Capacity
Prioritise the development of staff or recruit staff that do, or can, function autonomously and act responsibly
Create benchmarks and objective measures
Track and report your failures
Avoid adaptive or reactionary changes
4. Confidence “Who watches the watchers” Juvenal
Prioritise stakeholder management
Long term success requires broad engagement and commitment
Building confidence increases efficiency and reduces costs
Confidence will result from demonstrable commitment to
approachability
clarity
prudence
transparency and
accountability
5. Collaboration “Even while they teach, men learn” Seneca
Effective organisations are based on communities of shared values
Influencing management requires systematic communication and collaboration with key stakeholders
Engage in a process of cultural socialisation to create collaborative group and peer pressures
Act strategically to influence the course and direction of your business
Reward stakeholders for their support and involvement
Communicate openly and admit error
6. Competency
Invest in staff development
Recruit staff that intuitively support a compliance culture and the broader regulatory framework
Legal / technical knowledge should be secondary to their capacity to reconcile cultural values with commercial aims
Broaden scope of interest to include HR, technology and documentation
7. Continuous improvement
Plan refinements and introduce regular changes
Build a culture that embraces progress and innovation
Incremental changes can be achieved through prescription, management oversight and formal processes in a bureaucratic culture however substantive change is not
possible without a commercial and ethical foundation and a principle based approach
Manage out problems
Delivering change
Success requires a mix of pragmatism and principles – incremental or adaptive changes underpinned by a fundamental commitment to professional duties and ethical values
Long term sustainability is more likely to be achieved by evolutionary changes than incremental or adaptive changes
Financial Wisdom Limited AFSL 231138
is part of the Commonwealth Bank Group
is a Principal Member of the FPA
provides nationwide financial advice services
represents a strong base of more than 410 advisers
Every Financial Wisdom adviser is backed by a powerful network of support services and has access to a broad range of investment, superannuation and insurance products.
Questions ?