FPA Presentation by Sean Graham

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Compliance Professionalism, Productivity and
Profit
Sean Graham, Head of Professional
Standards Financial Wisdom November 2006
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Our Obligations

• Provide services efficiently, honestly and
  fairly
• Comply with your AFS Licence conditions and the
  financial services laws
• Have available adequate resources
• Maintain the competence to provide the
  financial services
• Adequately train your representatives and
• Have adequate risk management systems.

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The Fundamentals

• Language changes perception
• Perception affects environment
• Environment determines behaviour

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The Foundation

• It is necessary for him who .. arranges laws ..
  to presuppose that all men are evil and that they
  are always going to act according to the
  wickedness of their spirits whenever they have
  free scope.
• Niccolo Machiavelli The Prince (1505)

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The Foundation

• It is necessary for him who .. arranges laws ..
  to presuppose that all men are evil and that they
  are always going to act according to the
  wickedness of their spirits whenever they have
  free scope.
• Niccolo Machiavelli
• The Prince (1505)

• A state which dwarfs its men even for
  beneficial purposes, will find that with small
  men no great thing can be accomplished.
• John Stuart Mill
• On Liberty (1859)

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Building on the foundation Language, environment
and behaviour
Professionalism is a strategic, commercial and
aspirational goal. Professionalism has to a
legitimate part of the business long term
planning
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Building on the foundation Structure and
approach

• Integrated and collaborative approach
• Structured, risk weighted and objective advice
  assurance process
• Integrated and formalised remediation and
  compliance coaching
• Regular communication, advice and training
• Structured issues Management and analysis

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Principles NOT Prescription

• Observe high standards of honesty and integrity.
• Disclose any limitation on your ability to
  provide objective advice.
• Maintain the knowledge and skills to provide
  competent financial planning services.
• Act fairly and reasonably towards clients.
• Act with due care, diligence and competence.
• Dont bring discredit to the financial planning
  profession.
• Maintain confidentiality when dealing with
  clients.
• Ensure your conduct complies with the
  Constitution of the FPA, the FPAs regulations
  and professional standards.

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Broadening our scope
A person cannot be said to operate efficiently
if he or she has no knowledge, or only a very
limited knowledge of the laws which must be
followed and which may circumscribe his or her
behaviour. Re Kippe and ASIC (1997) 16 ACLC 190
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Change language, change environment

• Compliance neither empowers nor motivates
• Talk in terms of Advice Quality (Consumer
  dimension) and Risk Assessment (business
  dimension), rather than Compliance

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Assessing advice quality

• 160 questions weighted according to
  significance
• Metric based
• Explicitly addresses
• Relevant statutory Laws (Corporations Act, ASIC
  Act)
• Business Rules
• FPA Rules of Professional Conduct
• Ethics and common law principles
• Reasonableness
• Quality and impact

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Compliance is management

• Effective compliance design manages bite
  size chunks of information
• Conduct issues
• Process failures
• Advice issues
• Disclosure issues

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Proving change

• Disclosure 78 reduction
• Advice 56 reduction
• Process 18 reduction
• Conduct 65 reduction
• Introducing refinements Delay, Training and
  Progress evidences that fundamental cultural
  change has been effected

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Practical steps 7Cs of effective change
And one should bear in mind that there is
nothing more difficult to execute, nor more
dubious of success, nor more dangerous to
administer than to introduce a new system of
things for he who introduces it has all those
who profit from the old system as his enemies ,
and he has only lukewarm allies in all those who
might profit from the new system Niccolo
Machiavelli, The Prince (1505)
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1. Culture

• all progress depends on the unreasonable man
  George Bernard Shaw
• Although organisations tend to change slowly over
  time, you can create a dominant culture quickly.
• Embed commerciality into your philosophy of
  compliance a compliance culture that inhibits
  long term financial performance is pointless
• Integrate social and ethical responsibilities
  into policies and processes and the decision
  making process
• Recognise that words create meaning
• Celebrate and reward professionalism
• Move beyond reactive operational risk insurance
  to innovation, value creation and competitive
  advantage
• Fear only motivates to a limited degree and for a
  limited time

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2. Commitment

• you cant learn too soon that the most useful
  thing about a principle is that it can always be
  sacrificed to expediency. W Somerset Maughan
• Understand how the organisation sees
  compliance
• Speak to advisers
• Speak to staff
• Read their Compliance Statement and Code of
  Ethics
• Read industry press
• Identify and promote measurable and achievable
  targets
• Embed consistency and transparency into
  cultural values
• Articulate the values around which you can
  mobilise support

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3. Capacity

• Prioritise the development of staff or recruit
  staff that do, or can, function autonomously
  and act responsibly
• Create benchmarks and objective measures
• Track and report your failures
• Avoid adaptive or reactionary changes

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4. Confidence

• Who watches the watchers Juvenal
• Prioritise stakeholder management
• Long term success requires broad engagement
  and commitment
• Building confidence increases efficiency and
  reduces costs
• Confidence will result from demonstrable
  commitment to
• approachability
• clarity
• prudence
• transparency and
• accountability

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5. Collaboration

• Even while they teach, men learn Seneca
• Effective organisations are based on communities
  of shared values
• Influencing management requires systematic
  communication and collaboration with key
  stakeholders
• Engage in a process of cultural socialisation to
  create collaborative group and peer pressures
• Act strategically to influence the course and
  direction of your business
• Reward stakeholders for their support and
  involvement
• Communicate openly and admit error

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6. Competency

• Invest in staff development
• Recruit staff that intuitively support a
  compliance culture and the broader regulatory
  framework
• Legal / technical knowledge should be secondary
  to their capacity to reconcile cultural values
  with commercial aims
• Broaden scope of interest to include HR,
  technology and documentation

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7. Continuous improvement

• Plan refinements and introduce regular changes
• Build a culture that embraces progress and
  innovation
• Incremental changes can be achieved through
  prescription, management oversight and formal
  processes in a bureaucratic culture however
  substantive change is not possible without a
  commercial and ethical foundation and a
  principle based approach
• Manage out problems

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Delivering change
Success requires a mix of pragmatism and
principles incremental or adaptive changes
underpinned by a fundamental commitment to
professional duties and ethical values Long
term sustainability is more likely to be achieved
by evolutionary changes than incremental or
adaptive changes
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• Financial Wisdom Limited AFSL 231138
• is part of the Commonwealth Bank Group
• is a Principal Member of the FPA
• provides nationwide financial advice services
• represents a strong base of more than 410
  advisers
• Every Financial Wisdom adviser is backed by a
  powerful network of support services and has
  access to a broad range of investment,
  superannuation and insurance products. 

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Questions ?