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. 

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