Working Smart
Written by Lee Rossini
In the mind of many financial planners continuously changing regulation is a necessary burden that comes with the territory. They would have returned to work in 2018 to discover that a raft of regulatory changes had taken place at the end of 2017. The reasons why policy makers decided to regulate the industry are well-known: mainly for the protection of clients and the professionalising of the industry. The million dollar question is whether regulation can be of benefit to a business?
Before answering the question, let us consider regulation as a necessary burden. Yes, it does result in additional costs to the business. The costs arise in the form of both direct and indirect costs. Direct costs refer to the actual costs of implementing a requirement, for example, the appointment of a compliance officer or instituting a new training programme as per the changes to Fit and Proper in December 2017. Indirect costs include hidden and less obvious costs, for example, the additional time taken to fill out compliance-related forms or the opportunity cost of investing in meeting the compliance requirements as opposed to investing in the business. Overall costs are also influenced by the nature, scale and complexity of the business.
Although it does take time and resources, these should be weighed up against the benefits. Our often negative perception of the costs can prevent us from appreciating the benefits; the main value-add revolves around improving the financial planning outcomes experienced by our clients. By offering protection to clients, regulation requires us to put our clients at the centre of our business and to ensure they are treated fairly and advice given is appropriate and in their best interests. This results in a positive experience which clients are happy to repeat. This translates into client loyalty and client referrals; both of which represent a benefit or value-add for any business as they directly affect the bottom-line. The indirect benefits are the increased trust and confidence in the business and thereby the industry on the part of clients and the public in general. From a business perspective, regulation assists significantly in managing risks by requiring the business and its employees to meet certain minimum standards together with the implementation of operational and financial requirements. Very few other industries provide such a useful operational framework. The proper management of compliance also reduces the risk of administrative fines, penalties or in a worst-case scenario, debarment or the loss of a FSP licence or imprisonment. When selling a financial planning business, a well-managed compliance function which integrates the requirements throughout the business can significantly add to the value of the business. In addition, by focussing on the real objective of regulation, protection of the client, builds reputational capital, a vastly underrated spin-off benefit of regulation. These are intangible benefits which are more difficult to measure than the costs associated with regulation, with the result that most FSPs fail to take them into account.
How can you as a business owner ensure that the benefits outweigh the costs? The most important factor is to lead by example; demonstrate at all times through your words and actions that the fair and equitable treatment of clients is at the very heart of the business. Even though you may delegate responsibility for implementing certain compliance requirements, as a FSP licence holder, you can never delegate accountability. Make sure you have a thorough understanding of and are up-to-date with the legislation that applies to your business: read, ask questions, engage, implement, adjust and continuously monitor. Compliance should form an important aspect of your business strategy by integrating the requirements into business policy, processes and systems. Place compliance on the agenda at meetings, hold robust discussions on what the requirements are and how best to implement them, discuss what it means to be compliant and what the possible consequences of being non-compliant for both the business and the employees might be. Include the relevant compliance requirements in employee contracts and key performance outcomes for staff members. Create weekly or monthly feedback loops which ensure that non-compliance is picked up timeously and managed continuously instead of only at the time of a performance review. Lastly, keep in mind what the main objectives of regulation are; the protection of clients and professionalising the financial services industry. Take these objectives and embed them into the DNA and culture of your business. Be proud to be compliant and the benefits will far outweigh the costs.
