Compliance and regulation key concerns for advice firms

Compliance and regulatory changes have been identified as number one operational challenges for Australian financial advice firms, according to the global survey conducted by asset manager Dimensional Fund Advisors.

Following this, the implementation of workflow processes and improving profitability emerged as the second and the third ranked, respectively.

According to the Australian sample in the survey, which included the sample of more than 100 local advisory firms representing jointly some $24 billion in assets, 58% of firms cited managing compliance and regulatory changes as one of their top three operational initiatives or challenges, which stood in contrast to the US survey cohort, where only 12% of firms cited it as a top initiative.

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Also, many local firms struggled with rising regulatory and governance costs, including the time dedicated to lengthy statements of advice (SoA).

Responding to that, the Australian Securities and Investments Commission (ASIC), which consulted with the industry on how to promote access to affordable advice this year, issued guidance to the industry on how it could use shorter and less formal records of advice in certain circumstances such as when no product recommendations were made or where very small sums were involved or due to relief allowed under the pandemic until April 2022.

According to Dimensional Australia’s client group co-head, Nathan Krieger, the firm’s adviser and equivalent investor surveys showed year after year that those with the benefit of a financial adviser valued that relationship highly and the challenge for the industry would be now how to make that service both more widely accessible and profitable.

“What we know is that advice firms are being incredibly purposeful about how they grow their businesses, how they improve their processes and being aware of the obstacles they need to overcome,” Krieger said.

“On the operational side, though, it seems the regulatory environment is still the number one focus.”

In terms of growth, the survey found the top two priorities for Australian firms were sourcing and converting prospects, with referrals both from existing clients and from centres of influence still the dominant source of growth – eclipsing digital marketing and other initiatives.

Other findings in the survey included:

  • Focusing on systems and processes to improve efficiency was reflected in a much higher ratio of revenue per full-time employee among the top quartile of firms ranked by profitability;
  • While firms had modestly raised their fees in the past three years (to around 1 percentage point for clients with $500K in assets) there has also been a shift to more hybrid pricing such as retainer fees; and
  • In terms of the post-COVID business landscape, faster-growing firms are more likely to provide IT benefits to their employees and two thirds allow staff and management to work from home. 



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"58% of firms cited managing compliance and regulatory changes as one of their top three operational initiatives or challenges"

I think 42% are either lying or their advice isn't compliant lol.

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