Secondary

Compliance Considerations

Today, farming is possibly the only industry with a sharper rise in input costs than that of the independent financial advisor. For quite a while now, this important sector of the financial services industry is finding it impossible to absorb more regulatory demands without sacrificing production time.

Better application of technology is one remedy, but has its limits. Outsourcing functions is another option, allowing one to focus on one’s core function – that which keeps the business afloat.

Appointing an outsourced compliance service is one way of managing the risk of non-compliance, thereby safeguarding the future of your business. As with other compulsory expenses, e.g. professional indemnity cover, you need to ensure that you get full value for your money.

What should you consider when deciding on the best solution for your practice?

Objects in the rear view mirror
Do you require pro-active or reactive compliance monitoring? The law requires that a category I and IV FSP should be visited by its compliance officer at least on a quarterly basis, and category II, IIA and III on a monthly basis.

A colleague compared the difference between a monthly and a quarterly visit as follows: When you review your compliance practice every three months, you tend to focus more on the rear view mirror than the road ahead, as you try to catch up what you missed. While discovering what had gone wrong, you are not really able to focus on the road ahead.

When your compliance review happens on a monthly basis, the feedback and remedy is much more immediate, which allows you to focus on the month ahead. In three months, a lot more can go undetected than in a month.

Cost
A simple price comparison often forms the basis for one’s choice of a compliance provider. Quite often, there is a very good reason why one provider charges more than another.

Consider the following scenario:
Company A charges you R1 600 where company B only charges R1 200 per month. The normal reaction is to opt for the cheaper one, but consider this: Company A visits you on a monthly basis, while B sees you every third month. The actual cost per visit is therefore substantially higher in the case of B. You could, unknowingly, be paying more for less.

Another consideration is the cost of outsourcing versus electing the in-house option. For the latter, you need to know what the hourly tariff is for your services to your clients. When comparing it to the outsourced option, you need to compare apples with apples. If your compliance officer sees you for two hours every month, you cannot simply multiply your own tariff with two. You need to consider aspects like the time you spend to stay abreast of compliance requirements and your ability to access, interpret and apply legislation correctly, as well as the risk if you get it wrong.

Size does matter
There are shades of grey in respect of the value that a provider can add to your practice.

  1. The intellectual capital of a provider is determined by the total knowledge base at its disposal. In an industry where change is the order of the day, you want your provider to keep up to date, and change its policies and procedures in line with new demands.
  2. What is your compliance provider’s contingency ability? What happens to you if something happens to your compliance officer?
  3. Does your chosen compliance practice have a national footprint? This allows you to grow your business and service all your branches via one channel.
  4. Are your compliance shortfalls identified by means of an upfront compliance audit, followed by prioritised implementation of a structured risk management plan?
  5. Does your provider make use of the latest technological advances to manage its monitoring and reporting functions? For them, too, working smarter, and harder, means cost effectiveness which benefits you in terms of pricing.
  6. What can you expect in terms of assistance if a complaint is laid against you?
  7. What experience does your provider have? A well established compliance provider not only knows the practical essence required to keep your business compliant, it will also have established a number of key relationships to the benefit of it clients.

In Conclusion
The information above is by no means comprehensive. You may want to use this to conduct your own compliance needs analysis to determine whether your current provision measures up to your needs.

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