“I’ve been the archer, I’ve been the prey”, Taylor Swift, “The Archer”
Advisers often make the critical mistake of choosing the wrong compliance professionals, which can lead to significant regulatory and financial repercussions. The issue isn’t a lack of concern for compliance; it’s a misunderstanding of what true expertise in Financial Services Compliance entails.
This article explores the common pitfalls advisers face when selecting compliance consultants and provides actionable advice on making better choices. Who you select to work with can have a significant impact on you and your business, but your selection process will be more effective if you:
- Ask the Right Questions.
- Look for Proactivity.
- Consider Cultural Fit.
- Evaluate Reputation.
- Assess their philosophy and approach.
The Cost of Misplaced Priorities
Misplaced priorities are among the most common reasons advisers end up with the wrong compliance experts. Often, familiarity is mistaken for competence. It’s natural to gravitate towards someone you know or who seems approachable, but this doesn’t guarantee they have the necessary expertise to handle complex compliance landscapes. Familiarity does not equal competence—and in the world of Regulatory Compliance, this can be a costly error.
It’s important to recognise that while many AFS licensees and advisers place a premium on working with big brands like PwC, EY or Deloitte, recent scandals have revealed significant issues with competency, cost, and compromised services within these firms. For instance, PwC has been embroiled in a tax scandal in Australia, leading to serious questions about its governance and independence. Similarly, the Big Four, including Deloitte, have faced multiple scandals related to defective audits, governance failures, and even lawsuits over negligence.
These incidents highlight the risks of over-relying on brand recognition as a measure of quality. While these firms have global reputations, that doesn’t always translate into the best service or outcomes, especially in compliance. ASIC’s focus is on the substance and effectiveness of compliance, not the brand name behind it. Therefore, it’s crucial to critically evaluate the actual expertise and track record of the compliance services being offered, rather than assuming that a big brand inherently guarantees superior quality. Although, to be fair, these established firms sometimes have comprehensive resources and networks that can be beneficial when leveraged effectively.
Another reason is that AFS Licensees and advisers sometimes prioritise cost over quality.
After all, they’re running a business, and cost is always a factor. Unfortunately, while it’s understandable that advisers want to manage expenses, cutting corners on compliance can lead to disastrous outcomes. Regulatory breaches, fines, and reputational damage are far more expensive than investing in quality compliance advice from the outset. In too many cases, saving money on compliance can be a false economy. The wrong compliance advice can lead to regulatory breaches, fines, and reputational damage—costs far outweigh any initial savings.
“In my experience, investing in preventative measures upfront is always more cost-effective than playing catch-up once ASIC comes knocking. There’s nowhere to hide once you’re on their radar. And isn’t it better to select an assurance specialist who is adept at prevention, rather than subjecting your AFSL to the behest of “Big 4” remediation?” Cristean Yazbeck, Hamilton Blackstone
Finally, there’s the allure of perceived simplicity. Compliance is inherently complex, but some licensees and advisers think they can simplify it by choosing someone who tells them what they want to hear. They’re looking for an easy solution to a complex problem, and that’s rarely a good idea. The reality is good compliance advice is often nuanced, frequently uncomfortable and generally requires difficult but necessary decisions. If it sounds too easy, it probably is.
Don’t risk your business by making poor compliance choices. Reach out to our team for expert Regulatory Support tailored to your needs.
Misunderstanding True Expertise in Financial Services Compliance
“I think it’s fair to say that the demands and expectations on compliance professionals are growing exponentially. Regulatory expectations are becoming ever more complex and nuanced.” – ASIC Chair Joe Longo “Effective compliance: Perspectives from the regulator”, 17 September 2024
Another reason Advisers choose the wrong compliance people is that they misunderstand what expertise looks like. They might assume that anyone with a law degree or a background in finance is automatically qualified to handle compliance. However, compliance is a specialised field that requires specific knowledge and experience.
Real compliance experts understand the regulatory environment, not just in theory but in practice. They know how to interpret the rules in the context of an Adviser’s business. They’re not just rule-followers; they’re problem-solvers. They can help Advisers navigate complex regulations in a practical and effective way.
But this kind of expertise isn’t always obvious. It’s easy to mistake confidence for competence. Some people are very good at talking the talk, but that doesn’t mean they can walk the walk.
Advisers must look beyond surface impressions and dig deeper into a compliance professional’s experience and track record.
- Australian Securities and Investments Commission v Financial Circle Pty Ltd [2018] FCA 1644
- Australian Securities and Investments Commission in the matter of NSG Services Pty Ltd v NSG Services Pty Ltd [2017] FCA 345
- Australian Securities and Investments Commission v Wealth & Risk Management Pty Ltd (No 2) [2018] FCA 59
Real compliance experts do more than follow the rules—they solve problems. They understand the regulatory environment in theory and practice, and they know how to apply this knowledge to the specific context of an Adviser’s business. They are not just rule-followers; they are strategic Advisers.
Unfortunately, this level of expertise isn’t always immediately apparent. Confidence can be mistaken for competence, and surface impressions can be misleading. Advisers must dig deeper, examining a compliance professional’s track record and real-world experience.
Ensure your compliance is in expert hands. Contact us today to learn how our Compliance Consultancy services can protect your business.
How to Choose Real Compliance Experts
“What’s needed is an attitude of compliance, based on a curious mind that asks the right questions.” – ASIC Chair Joe Longo, “Effective compliance: Perspectives from the regulator”, 17 September 2024
To avoid these pitfalls, Advisers must first understand what they truly need from a compliance expert. Compliance isn’t just about ticking boxes; it’s about safeguarding the business and its clients. Advisers should seek professionals who offer strategic advice, not just a checklist.
- Ask the Right Questions: Instead of focusing on qualifications or years of experience, probe deeper. Ask how they’ve handled a regulatory breach in the past. Inquire about their approach to balancing compliance with business goals. Find out how they stay current with changes in the regulatory environment. These questions will reveal far more about their expertise than any resume.
- Look for Proactivity: The best compliance professionals don’t just react to problems—they anticipate them. They constantly think ahead, identify potential risks, and help Advisers avoid them. This proactive approach is invaluable, and something Advisers should actively seek.
- Consider Cultural Fit: Compliance should not be seen as a barrier to business but as an integral part. The right compliance expert understands this and works to align compliance with the Adviser’s business goals. They should be seen as partners, not just gatekeepers.
- Evaluate Reputation: In the world of compliance, reputation is crucial. A good compliance professional should have a proven track record of success, not just in avoiding breaches but in adding value to the business. Seek out references, talk to other Advisers, and seek independent validation of their skills and experience. According to Cristean Yazbeck, you should do your Google searches before engaging experts: have they been sued for professional negligence, for example? A basic search incorporating terms such as “litigation” or “negligence” will quickly identify some “leading” compliance specialists spending their time defending legal proceedings brought by their AFS Licensee clients. Again, reputation is critical.
It can be difficult for advisers and Licensees to make this choice. Recently, we observed “Governance experts” reissue guidance they’d provided to their clients immediately after we published the correct interpretation. Surprisingly. although they know we know they subscribe to Three Hit Tuesday, they didn’t acknowledge us in their corrected guidance.
Here’s another example. Earlier this year we reviewed a self-licensed business supported by a larger group that offers compliance support. When we identified significant issues with the documents, processes and policies provided to, and relied on by, the self-licensed business, the service provider explained that they don’t charge much and it’s the self-licensed business’ responsibility to ensure the documents, processes and policies are current, complete and compliant. In our view, if the self-licensed business could do that, they wouldn’t have engaged the “experts” to provide them with compliance support. Worse still, the self-licensed business had no understanding of the risks they’d assumed.
Others sell generic compliance manuals and boilerplate policies designed to prove ‘compliance’; part of a checklist approach that benefits no one.
Unfortunately, it’s often difficult for advisers and licensees to avoid those that sell what ASIC Chair Joe Longo described as “a hollow, empty kind of compliance.”
It’s difficult, but not impossible.
Ready to find the right compliance partner? Schedule a consultation with our team to discuss your specific needs.
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The Ethical Dimension: Human Meaning in Compliance
There’s a deeper layer to compliance that often gets overlooked—the ethical implications.
Compliance isn’t just about following rules to avoid penalties; it’s about doing the right thing. Ethical compliance is what gives financial advising its true meaning and purpose. It’s a societal obligation, not just a business practice.
When Advisers choose compliance experts who understand this, they’re not just protecting their business; they’re contributing to the financial system’s integrity. Ethical compliance aligns the interests of the business with the well-being of society. It’s about fairness, justice, and trust. These aren’t just abstract concepts—they’re the foundation of a sustainable business in the long run.
The Role of Technology in Compliance
Technology, AI, and machine learning are shaping the future of compliance. These technologies are transforming how compliance is managed in financial services.
On the one hand, AI can simplify compliance processes, making monitoring transactions easier, detecting anomalies, and ensuring that regulations are followed. This can save time and reduce the burden on human compliance officers.
But AI also introduces new risks. Algorithms can be opaque, and biases in data can lead to unfair outcomes. Compliance professionals need to be aware of these risks and know how to manage them. Accordingly, the role of a compliance expert is evolving—they need to be tech-savvy and able to understand and mitigate the risks associated with AI-driven compliance tools.
Unconventional Thinking: Rethinking Compliance
Sticking to traditional compliance norms can be a mistake in a rapidly changing world. Advisers should challenge the status quo and explore innovative approaches to managing compliance.
This might mean leveraging new technologies, like AI, but it could also mean adopting new frameworks or rethinking the role of compliance within the broader business strategy.
Unconventional thinking in compliance is about being proactive, not just reactive. It’s about looking for ways to integrate compliance into the business in a way that adds value rather than seeing it as a necessary evil. For instance, why not use compliance to differentiate the business rather than merely ensuring that regulations are followed? Why not make compliance a selling point by showing clients that you’re not just compliant but ethically and proactively so?
Balancing Regulation and Innovation
One of the abstract principles behind compliance is the balance between regulation and innovation. Too much regulation can stifle creativity and slow progress, but too little can lead to chaos and harm. The challenge for compliance professionals is to find the sweet spot where innovation can flourish without compromising ethical standards or legal requirements.
This balance is crucial in financial services, where the stakes are high and the pace of change is accelerating.
Advisers and Licensees need compliance experts who understand this balance and can help them navigate the fine line between pushing the boundaries of what’s possible and staying within the bounds of what’s acceptable.
The Philosophical Side of Compliance
“Regulatory expectations are becoming ever more complex and nuanced.” – ASIC Chair Joe Longo “Effective compliance: Perspectives from the regulator”, 17 September 2024
At its core, compliance is about fairness and justice. It’s about ensuring that everyone plays by the same rules and that they are applied consistently. But fairness and justice are not always black and white. There are often grey areas, especially in complex industries like finance.
A real compliance expert understands these nuances. They know that sometimes the letter of the law isn’t enough—that the spirit of the law matters too. They’re not just enforcers of rules but guardians of ethical standards. And in a world where financial decisions can have far-reaching consequences, that’s a role of immense importance.
Conclusion: The Path to Compliance Success
Choosing the right compliance people is about more than just avoiding fines or regulatory action; it’s about building an ethical, innovative, and sustainable business. By focusing on the right priorities, understanding the evolving role of technology, and embracing unconventional thinking, Advisers can find compliance professionals who are not just experts but true partners in their success. Ultimately, the right choice in compliance isn’t just a business decision—it’s a commitment to doing what’s right for clients, the industry, and society as a whole.
Don’t risk your business by making poor compliance choices. Reach out to our team for expert Regulatory Support tailored to your needs. Contact us today to ensure real experts in Financial Services Compliance protect your business.
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