Regulatory change for advisers has, regrettably, become more of a constant than the exception. But with the minister’s QAR reforms laid before us, a concentrated period of change looms.
The release of key parts of the Delivering Better Financial Outcomes reform package last month by Financial Services Minister Stephen Jones has focused AFSL holders’ attention on the changing regulatory landscape yet again.
These reforms are open for consultation and the government expects to progress the legislation by the end of 2024.
Change is ongoing and needs to be managed appropriately. AFSL holders need to consider what impact these reforms will have on their business.
Advisers can sign up for updates from the various regulators through each regulator’s website. There are several services that provide updates to help AFSL holders stay up to date on regulatory change, which usually have a monthly subscription fee.
AFSL holders need to:
- Be aware of regulatory changes
- Assess what impact, if any, the changes will have
- Plan for the implementation of the changes and any transition periods
- Implement the changes
AFSL holders are expected to be compliant with regulatory changes from when they are implemented. Many firms only start considering the changes when they have already come into effect. This is too late. Don’t get caught not having appropriate arrangements in place to comply with financial services laws. This may be a breach of an adviser’s AFSL obligations.
Change does not happen by itself. For larger advisory firms with the benefit of an in-house compliance officer/team, the transition to a new regulatory regime is usually captured, communicated, considered and implemented by the required date, however for smaller operators the task falls on each individual’s shoulders.
Our advice to this cohort is clear: get it done, and keep it simple. Don’t over engineer a new process. Consider what needs to be done and then implement it. Document the changes, whether this is updating policies or procedures, making changes to templates or checklists, or leveraging technology to streamline processes.
There is much to come from the government, particularly on Best Interest Duties, simplifying SoAs and removing the safe harbour provisions.
The existing obligation to act in the best interest of the client still exists and conflicts stay at the heart of the standards. The principles of appropriateness and fit for purpose remain. The delivery of scaled and limited scope advice should be clearer. This would ensure the quality of the advice meets consumer needs.
Statements of Advice will be replaced with a more fit-for-purpose, principles-based advice record which must address the following four principles:
- subject matter/scope
- the advice
- reasons for the advice
- the cost of advice to the client and/or benefits received by the adviser
A new class of adviser limited to simple personal advice to increase the availability of affordable advice will have restrictions enforced. They will not be able to charge a fee or receive commission relating to the personal advice they provide. The AFSL holder will be responsible for the advice and will need to ensure the advice is provided under a single uniform quality standard.
Superfunds will have a framework to provide superannuation advice that is more aligned with member requirements.
These changes are significant for industry.
Poor record keeping is one of the most common issues we encounter when advising smaller firms. Paper-based record keeping can also lead to poor or lost records. We recommend centralised electronic protocols as the most workable and reliable.
For example, use a good CRM tool or simply send yourself an email after every client interaction, then file them in a folder so they can be easily retrieved.
Make record keeping second nature. It shouldn’t be a burden. Don’t overcomplicate. Be timely, succinct and diligent.
If going the ‘self-email ‘route make sure your email system is subject to a back-up mechanism.
A second pinch point for many small practices is out of date website content.
Keep the information current and prominently date every change on website documents. Ensure the Financial Services Guide is prominent on the website and up-to-date and that hard copies are identical to the website as well as being readily available.
Regrettably, a process that could have been a sprint or middle-distance run has morphed into a marathon, so simplicity is a key to survival.
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