Get your house in order

by Peter Rawle

In times of market turmoil such as we are seeing at the moment, history has shown that clients are likely to experience damages across their portfolio and will look for someone to blame. It is therefore imperative for planners and dealers to take all necessary actions to avoid potential litigation above and beyond that required in your normal course of business.

Whilst regulation and compliance has increased dramatically over the past 20 years to the point of frustration for many advisers and dealers, like anything else in life, there is always a level of improvement that can be achieved. This is not unlike the ever persistent desire to improve your golf handicap or your score in any sporting arena.

Due to the complexity and the ability to misinterpret instructions and regulations it is inevitable that we need professional assistance in order to achieve the highest possible standard.

Many dealers might be tempted to cut budgets due to decreased gross revenue in the current markets, but compliance is one area where expenditure should be increased to ensure that the business can continue to operate into the future and withstand the onslaught of potential litigation by clients and their legal parties.

The cost of litigation should not only be seen in the direct dollar compensation which might be required but also the time and distraction from running your day to day business.

As a direct result of the increased need for compliance in recent years many groups have been formed to offer this service. Some groups are simply one-man bands who take it upon themselves, albeit with very good compliance knowledge, to attempt to keep up to date across all fields and provide ongoing compliance support to many clients at a discount price.

It is necessary to distinguish between groups as above and those who employee a number of very highly qualified and experienced compliance experts who have the ability to advise at a more senior level and therefore not only provide a greater level of comfort to the responsible managers of the licence but also decrease the likelihood of an action against them being successful, and also reduce the time taken to defend such actions should they arise.

The difference in cost for an external licensee review may only be a few thousand dollars per annum between the lower end provider and those providing an expert level of service at the top end.

When you consider the potential savings to be gained from reduced litigation, the cost of time and the potential reputational damage to the dealer group, surely it makes sense to engage the best possible advice available in this current market.

Compliance support is also provided by product manufacturers to dealers and advisers who utilise their products. Whilst the resources of these institutions may be significant this type of support must beg the question as to the objectivity of such a compliance review of an important client of the firm.

In essence, to achieve the highest possible standard of compliance, dealers need to ensure that their external licensee review and their authorised representative audits are completed on a regular basis by a highly qualified team.

Other areas which can reduce the compliance risk in your business include properly supported IT usually via Xplan or Coin, research including Superratings Smart research and appropriate professional development suited to the style of advice that the authorised representatives provide.

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