“A good intention, with a bad approach, often leads to a poor result. – Thomas A. Edison
Edison’s Transition to Retirement Calculator may no longer be widely used, but he certainly understood distribution and the realities of financial services compliance. Many advisers believe they’re doing everything right. Many advisers believe they’re good at compliance. They tick all the boxes, follow the rules, and assume (or hope) that things are okay. But looking closely, it may turn out they’ve missed a lot. The problem isn’t laziness or carelessness. It’s that continuous compliance is challenging, and what looks like a minor oversight can become a big deal very quickly.
In fact, in the highly regulated world of financial services compliance, even the smallest oversight can lead to significant legal and personal consequences including hefty fines from regulatory bodies. Recently, I reviewed an adviser who, despite the best intentions, made a series of seemingly innocuous mistakes that materially disadvantaged their client and sabotaged their reputation for professionalism. Then, the Licensee got involved.
We’ve reviewed over 21,000 client files. That’s a huge dataset, and it tells us something surprising: the same common compliance mistakes pop up again and again. These errors aren’t outlier cases. They’re common. You might even be making them yourself. So, here are the top five compliance mistakes you’re probably making—and how to fix them.
1. Not Tailoring Advice to Clients
Here’s the first one. You think you’re giving advice that fits the client, but you’re not. It happens when advisers assume a one-size-fits-all approach will work. You’ve got templates, standard questions, and an efficient method. You may even have an in-house investment product you can recommend that you know nearly everything about. But compliance isn’t about efficiency; it’s about precision. You need to tailor each bit of advice specifically to the client’s situation.
Compliance consultants understand that ensuring the advice is tailored to each client’s unique circumstances is crucial for maintaining regulatory requirements. This is where comprehensive compliance processes and strategies come into play. These strategies involve collaboration with clients to create tailored approaches that align with organisational goals, enabling businesses to navigate the regulatory landscape effectively and avoid compliance mistakes. Unfortunately, some advisers seem to prioritise their process (and ‘compliance’) over their clients’ needs and circumstances. Unfortunately for them, just going through the motions seldom satisfies consumers or regulators – generic recommendations, inadequate discovery, consistent product recommendations, and boilerplate reasoning stand out in advice documents.
Unfortunately for them, just going through the motions seldom satisfies consumers or regulators – generic recommendations, inadequate discovery, consistent product recommendations, and boilerplate reasoning stand out in advice documents.
The fix? Slow down. Really listen to the client. If they have unique circumstances, your advice needs to reflect that. Don’t assume a general approach covers all bases. It won’t. Compliance efforts may be different from one to the other.
2. Overlooking Record Keeping
This one’s sneaky. You might give the right advice, but it’s like it never happened if you don’t document it properly. It’s easy to think, “I’ll write that down later,” but later doesn’t always come. Missing records or incomplete notes make a file hard to defend. When the regulator checks, they want to see proof—clear, accurate records that back up your decisions. Effective compliance programs and frameworks should include robust compliance risk management strategies prioritising accurate and timely record-keeping of all compliance-related activities.
Also, if there’s an issue with your advice documentation – say, for example, you issued a Statement of Advice that didn’t adequately explain your reasoning or confirm the reasonableness of your client’s understanding – your file notes data can back you up and provide the necessary context and detail. It’s still not ideal, but it’s much better than having nothing!
How do you avoid gaps in your file? Make it a habit to document everything immediately. Don’t wait until the end of the day. Do it in the moment while it’s fresh.
“Accurate record-keeping is a cornerstone of compliance risk management and is essential for meeting your regulatory obligations.”
Talk to us about different ways you can meet your record-keeping requirements. There are a plethora of tools and approaches. We see businesses using everything from pen-and-paper to the latest AI file-note systems. What works for one business may not work for another.
3. Misunderstanding Best Interests Duty
It seems simple: act in the best interests of the client. But in practice, many advisers need to do better. They think they’re doing what’s best, but they’re leaning on their preferences or assumptions. It’s easy to default to a product you’re familiar with or assume the client wants something because it’s what most clients in that demographic want. Or – more concerningly – because you can easily convince a client that it is something they want.
Breaching the Best Interests Duty can have severe legal and personal consequences. Advisers who don’t act in the best interests of their clients may face significant penalties, including fines, sanctions, or even the loss of their AFSL. This is particularly true if the adviser’s actions prioritise their own interests over their duty to their client, such as recommending a product that benefits the adviser more than the client.
Beyond legal repercussions, there is also the risk of losing client trust, which can be even more damaging in the long term.
To fix this, constantly check yourself. Ask, “Is this genuinely the best thing for this company or this client?” Not for most clients, not for the business, not for the client sitting in front of you.
4. Inadequate Risk Profiling
Assessing risk tolerance is a standard part of most advisers’ processes. But here’s where some advisers stumble: they treat risk profiling as a box to tick rather than a conversation. They run through the questions, get the answers, and think they’re done. However, those answers often don’t reflect the client’s real attitude toward risk, and if things go wrong later, it becomes clear the risk wasn’t adequately considered.
The solution? Make it a real conversation. Dig deeper. Ask follow-up questions. Risk tolerance isn’t just about numbers—it’s about emotions, goals, and comfort levels. It’s also about data security and also about reality – is there a mismatch between the indicative risk profile and the risk the clients need to take to achieve their goals? Understand the client’s mindset, not just their data.
5. Ignoring Regulatory Changes: Compliance Strategies
Regulations change all the time. Some advisers think they’re following the rules because they learned them years ago, and the “principles don’t change”. But you’re already behind if you’re in compliance status not staying on top of changes. This isn’t just about significant reforms; even minor tweaks can leave you non-compliant without you realising.
Staying updated on regulatory compliance is not just about adhering to regulatory requirements and obligations; it’s about proactive risk management to safeguard your practice.
The best way to fix this is to subscribe and stay educated. Regular training, updates, and reviews are essential. It’s not just about doing things right once—it’s about doing them right every time, as the rules evolve.
“Staying updated on AFSL compliance requirements and other regulatory obligations is crucial for effective risk management and maintaining your license.”
At the risk of adding to your regulatory trauma, please remember that compliance is not a one-time task but a continuous commitment. By avoiding these common compliance side mistakes, you protect your clients and safeguard your reputation and career. Remember, in compliance, the devil is in the details.
For comprehensive financial services compliance consultancy and to ensure your practice meets all regulatory obligations, contact Assured Support. Our experts are ready to assist you in navigating the complexities and risks of compliance with tailored solutions.
If you liked this, we recommend that you read:
Reviewers’ Hot Takes: Four paths to better advice
A modified version of this article was published by Money Management.
