Financial Planning Changes: how to survive and thrive in this new world

Financial planning changes following the Royal Commission's report mean tighter compliance requirements for your practice.

But your business is already pushed to the max dealing with day-to-day administration, client consultations and reporting. Adding the burden of understanding and meeting compliance — increased education needs and extra documentation — can easily tip you over the edge.

How can you meet the new compliance demands without disrupting your practice? Here's a tour of the changes and how technology can help.

New professional standards for financial advisers

The Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry handed down its final report in early 2019. The report's recommendations were designed to make financial services more accountable and transparent in dealings with clients.

Those findings have been legislated into a set of requirements financial advisers need to comply with to stay licensed. Some commenced immediately, others have transition periods, but it's extremely likely the changes will affect your practice in some way.

What will the financial planning changes mean to you?

Recommendations can be split into four major categories:

• New education requirements
• An end to grandfathered commissions
• Annual opt-in and fee disclosure requirements
• Increased client documentation

Let's look at each.

New education requirements for financial advisers

One of the major changes relates to the training and qualifications advisers need if they want to use the terms "financial adviser" or "financial planner". Under the new requirements, financial advisers must both:

• Have or obtain a relevant degree (Bachelor or higher), or equivalent qualification
• Pass a FASEA-approved exam

A "relevant degree" is one containing at least eight courses covering subjects such as financial planning, investments, accounting, tax law and banking. Generous transition periods were granted to allow planners on the Financial Adviser Register to comply, and Recognition of Prior Learning may help shorten the path for many advisers.

Continuing professional development

The FASEA education requirements also specify ongoing CPD: 40 hours each year, of which 70% must be approved by the licensee (with a maximum of four hours of professional reading). Of the 40 hours, 24 are split across four mandatory categories — Technical, Client Care and Practice, Regulatory Compliance and Consumer Protection, and Professionalism and Ethics — with the remaining 16 made up of any other qualifying professional development.

Code of Ethics

Financial advisers also need to abide by a Code of Ethics — a set of principles and values aimed at promoting ethical conduct and professional behaviour.

All this retraining and learning creates an added strain on your business in both time and finances. That, in turn, means you'll need to do everything you can to make your business more efficient to stay profitable.

An end to grandfathered commissions

What are grandfathered commissions?

Before 1 July 2013, many superannuation, investment or insurance accounts provided advisers with ongoing payments — trail commissions — from account fees. Reports very rarely itemised these commissions, so many clients were unaware they were paying them.

Legislation changes after that date banned setting up ongoing commissions on new accounts. However, the legislation wasn't retrospective. Money simply continued to flow from existing accounts in payments called "grandfathered commissions".

Huge financial impact

The Royal Commission's reforms ended grandfathered commissions. Where contracts required ongoing payments, advisers had to provide clients with a cash rebate or fee reduction. Industry analysis at the time suggested removing grandfathered commissions could reduce the average financial adviser's income by around 42%.

Clearly, ending grandfathered commissions has had a huge financial impact on financial planners.

How you can offset this loss

If you're one of the advisers impacted, you'll need strategies to cope with the loss of income. Many were already heading toward a fee-for-service model — the deadline simply forced them to move faster than planned. Reducing your cost of giving advice via efficiency-increasing technology is one of the most effective ways to keep your business profitable.

Annual opt-in and fee disclosure notice to clients

To increase transparency and prevent hidden fees, advisers must check in with clients each year. Each year, you need to provide every client with a written list of services and associated fees.

This annual fee disclosure statement must outline all fees and charges, and you'll need to send it to clients who've received advice for longer than 12 months. Each statement needs to show all ongoing fees for both the previous 12 months and the upcoming 12 months. Full transparency also means written authority from clients regarding payment of any fees from their client account, with opt-in at least every two years.

These extra requirements add to your administrative burden. You'll need better record-keeping to show you're meeting your obligations.

Increased documentation to prove client-focused services

Advisers need a higher level of proof that they're customising advice for each client rather than recommending a one-size-fits-all approach. You'll need to create each client's documentation specifically for them, and include proof of:

• How you made each recommendation
• All the services you provided

Generating this proof requires a System of Record (SOR) and detailed records of all client correspondence. Industry research consistently shows that firms using technology to facilitate the financial advice process see meaningful reductions in time spent on administration and compliance.

Digitising your documents and automating workflows can both streamline your business and improve your document management.

How Umlaut can help with your compliance needs

We've touched on a few ways technology can help your business meet its compliance obligations. Here's how Umlaut can help you make that happen.

Discovery program

Each financial advisory practice is unique. Our discovery process is a series of consultations with experienced data specialists to help you identify the data management solution that meets your specific business and compliance needs. We find the gaps in your existing compliance setup and recommend systems and solutions to plug them — then take the pain out of implementing those solutions through planning, rollout and training.

AdvisorForms

AdvisorForms takes time and manual paperwork out of collecting and storing client data. Digitised forms automatically populate into your System of Record. You'll spend less time and money on administration, and free up time for higher-value work — including ongoing education requirements. AdvisorForms also streamlines the additional administration of gathering client renewals.

Phoenix (data migration)

If you're using Xplan as your System of Record, our Phoenix service digitises and imports all your old data into the system and assigns it for you too. Imagine the nightmare of proving compliance when all you have are paper files in archive boxes or digital records spread across multiple hard drives. Our high-speed scanners digitise everything into a central, single source of truth for all client records — and we map a path toward compliance with ASIC and licensee standards.

BI & Reporting

Our BI & Reporting service pulls together client data from across your business and presents it visually in a single dashboard. That gives you a consolidated view of all your client data, unlocking analytical insights for better, more informed business decisions, while also dramatically increasing the transparency of your advice — directly supporting compliance.

Technology: reduce your compliance burden so you can survive and thrive

While the financial planning changes have shaken up the industry, they also create an opportunity. Using technology to reduce your compliance burden pays dividends by transforming your business into a streamlined, efficient operation that will outperform competitors stuck in paper-based ways of working.

Get in touch today.