Compliance storm brewing for dealer groups

Outdated manual compliance operations coupled with an increasing workload and loss of experienced practitioners threatens to create a massive compliance risk for dealer groups in the near future, according to Business Health.

The firm, which provides research and diagnostics for financial planning businesses, recently completed an in-depth study of compliance operations across a spectrum of financial planning groups and found a heavy reliance on outdated paper-based procedures.

"There are lots of paper-based checklists, Excel spreadsheets, Word documents with cut and paste," Business Health director Tony Stephens said.

The study also found that almost half of compliance officers are looking at moving into a different role within the next three years, creating the potential for a massive loss of experience in the sector, according to Business Health director, Terry Bell.

"[Compliance is] a critical area, it's getting more challenging and they're probably not armed with the tools to do it effectively," he said.

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"There's more of the same coming their way [due to increased regulation] and we're faced with an exodus of skill and knowledge. [Compliance officers] know how to do their job, but for the business owner who holds the licence, this is a real risk. We seem to have an old fashioned system handling a modern problem that's going to get bigger. Strategically, that's a risk," Bell said.

The study was completed between March and May this year and covered 11 corporate entities representing 16 licensee groups, including a total of 2,769 authorised representatives (ARs) and 40 compliance managers.

The entities included four 'boutiques' (less than 75 ARs), three 'mid-size' (75 to 150 ARs) and four 'large' (more than 150 ARs) entities.

Lack of automation of any compliance processes was a trend across all sizes of planning groups.

Less than half of groups sought information prior to an audit and only half of these did so online, but one way to save time through the audit process would be to get advisers to fill out questionnaires prior to an audit, Bell said.

That way an officer already had the answers to quantitative questions - such as whether up-to-date registers were kept, if client files were adequately secured, and if the licence was adequately displayed.

The officer simply had to check those answers were accurate during the site visit, and all answers could already be logged in an online platform. 

Around two-thirds of officers took more than six hours to complete the average onsite audit, which does not include time taken afterwards to produce a report.

Around one-third took less than an hour to prepare the report and just over a quarter took more than three hours. Two-thirds prepared reports in Microsoft Word.

However, collating the data in an online portal would allow more ready access to data and greater information sharing, according to Stephens.

"If anyone needs to go in and get information out then it's a time consuming and expensive manual process," he said.

"It appeases [the Australian Securities and Investments Commission] if you can show several years of reports with a trend analysis [but] that would be very labour intensive to do manually," he said.

If all the data was collated together, it was also much easier to identify systemic issues, Bell added.