Compliance culture (Proactive v Reactive)

Originally published | 06/03/2019

If you love or have loved comics in the past you will understand the stories of the heroes and the vigilantes.

The heroes are generally those types that come in as soon as trouble happens and save the day whereas the vigilantes are patrolling the streets, generally in the shadows and are ready to pounce on trouble as it happens.

In the comics, heroes come in many forms and it is only generally whether they are proactive or reactive as to whether they are called heroes or vigilantes. The reactive ones are the traditional superheroes, whereas the proactive ones are called vigilantes.

Two of the classics are Batman and Superman. Superman, the mild-mannered Clark Kent, reacts to danger and saves the day, or defeats his opponent, whereas Batman, a.k.a. Bruce Wayne, spent most of his early career as Batman patrolling the streets of Gotham from the shadows taking down criminals. If you’re a Marvel fan, you might compare Spider-Man and Daredevil. These two from the Marvel universe replicate what Superman and Batman do in the DC universe.

In hero culture, I’m not a big fan of the term vigilante. I think it attaches a stigma to what is trying to be accomplished. To me, it is more about whether the hero is being reactive or proactive.

Compliance within financial planning is sort of the same thing. For many years, and until the last twelve months, I would have been one of these, compliance managers conducted reactive reviews of advice. These are reviews sometimes twelve months after the advice had been implemented.

There is an inherent problem with reactive compliance, for both the financial adviser, and the retail client. That problem is that if there is an issue with the advice, it is sometimes difficult, cumbersome and costly to fix.

It is difficult because it is labour intensive in that there is a greater degree of review, contact and repair that needs to be conducted. These are also the same reasons it can be cumbersome. It is costly because if investments, super or insurance have been placed, they have been in place for twelve months and can be costly to unwind, especially if markets have turned south.

Proactive compliance involves the constant patrolling of the streets to fix issues as you see them. It involves getting involved in the financial advice provided by representatives early in the process and being able to actively manage the corrections.

Regulatory technology is a growth industry in the Australian Financial Services Industry and this technology, when used to its optimum, provides the ability for licensees to be more proactive, rather than reactive.

This sort of technology augments a compliance team’s abilities to improve the advice outcomes for their representatives which benefits the end client.

Using technology, such as the TIQK platform, allows both compliance teams and advisers alike to understand the day to day compliance issues they face and provides them with the opportunity to make changes in a more agile nature than if they wait for a traditional audit to be conducted.

Think about it this way. In a traditional audit, the compliance team requests anywhere from 2-4 files once per year and reviews these. The adviser is then given a remediation plan on these files to repair any deficiencies. But what has generally happened at this time, is that adviser could have produced 48-50 other pieces of advice that year which could have similar issues.

The reactive nature of these types of monitoring programs means that whilst a small percentage of files are remediated, the issues uncovered are generally hard wired by this stage and difficult to adjust.

By developing and utilising proactive compliance techniques, more advice is reviewed, which means there is a greater opportunity to fix the issues early, limit any financial detriment, as well as correct any bad habits early in the piece.

This type of process is not just beneficial for licensees, but also advisers within their practices as they can be more confident about the quality of the advice, they are providing their clients which can help achieve a better commercial outcome.

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