Is it Time for a Compliance Review?

Diligent financial advisors conduct regular reviews of their clients’ portfolios to ensure that their aims and goals are on track. This is not only a regulatory requirement, but essential for new business purposes as well.

Sometimes, these reviews will keep advisors so busy that they neglect to review their own businesses to ensure that everything is up to date. Those who make use of the services of a compliance officer, either internal or external, are better equipped, compared to others who only make time to conduct such an exercise when the annual compliance report falls due.

The questions raised in the compliance reports are amended on an annual basis to ensure that changes to compliance requirements are covered in the report. While this may appear straightforward from a strictly legal perspective, there are other subtle nuances which are often missed during the process of ensuring that you dot the i’s and cross the t’s.

These reports are published way in advance, but few study it prior to the due date of the report. This is quite dangerous, considering possible transgressions during the reporting period.

The publication of the road map to Treating Customers Fairly in 2011 brought a totally new element into the equation. It impacted on a much wider range of requirements than just making sure that you were able to tick the right boxes.

TCF actually gave substance to the sweeping statement contained in the General Code of Conduct which requires that a provider must, at all times, render financial services honestly, fairly, with due skill, care and diligence, and in the interests of clients and the integrity of the financial services industry.

This sentence is possibly the one that appears most often in determinations against advisors by the FAIS Ombud. They may have had a clean bill of health in terms of their compliance reports, yet failed the practical acid test.

Simply complying with the letter of the law is no longer sufficient – you are now required to be able to prove that your practice is also geared to comply with the spirit thereof.

One of the biggest challenges for financial services providers is keeping abreast of the constant stream of new and amended legislation. Often, even legal beagles differ in their interpretation of the law, despite the publication of discussion documents and guidance notes prior to the enactment of the legislation. This is borne out in a number of FSB Enforcement Committee findings against relatively big providers who relied on legal opinions obtained while developing products.

A classic example concerns the publication of guidance notes and directives on binder agreements over the past few years after publication of amended legislation.

The safest option is to employ a professional compliance service provider to assist you in this regard. While there are specific criteria to consider, it is not possible to provide you with a tick box, as your needs, and means, may differ from that of another provider.

Some of your considerations should be:

  • Compliance Officer (CO) to Client ratio: there are compliance practices where one CO services between 69 and 106 clients. Most of the bigger practices have a far more manageable ratio of between 25 to 30 clients.
  • Intellectual Capital Capacity: a strong research and development base ensures that clients enjoy peace of mind in terms of complying with the relevant legislation.
  • Compliance methodology: while technology can make life a lot easier, practical and personal interaction remains the cornerstone of reliable results.
  • Pricing: make sure that you compare like with like here. If two providers charge virtually the same fee, but one involves monthly visits and the other quarterly ones, you don’t need to be a maths professor to make the right sums. In fact, for the same service you could reduce your cost by two thirds.
  • Flexibility: choose a provider who can adapt to your specific needs without compromising quality and integrity. There is no need to pay for bells and whistles which is not relevant to your needs.
  • Reliability: experience and good industry standing comes from quality delivery over time.

Finally, bear in mind that the responsibility and accountability for complying with the regulations rests with you. It is perhaps as important for you, as it is for your clients, to ensure that your compliance “insurance” is of the required standard.

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