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Keeping compliance costs down

Globally the cost of compliance is rising – experts reveal their tips for advisers to make sure they are getting the best bang for their buck.

Thursday, April 8th 2021, 6:58AM

by Daniel Smith

Karty Mayne

Changes to regulatory responsibility is causing the cost of compliance in financial services to rise. Data from Deloitte shows that globally, compliance operating costs have increased by 60% in comparison to pre-GFC levels. 

Karty Mayne from Rosewill Consulting says that the rising cost of compliance is not solely due to changes from the regulator.

“The new regulations have been a catalyst for change, but what we have tended to observe is that advisers have been relying on free stuff for a long period of time. But with the change in regime they have had to get fresh documentation which may have been an investment for the first time.”

For Mayne a key way for advisers to keep their costs down is to invest in education.

“If advisers can learn about compliance, then they can self-manage a lot of what needs to be done in order for them to remain compliant, particularly if they have bought fit-for-purpose frameworks.

“What we see is financial advisers get so busy with their business that they don’t invest in their own development in terms of compliance.”

Mayne believes that costs can be mitigated by self-education but money still needs to be spent to bring most businesses up to scratch.

“Advisers need to realise that they are running a business, and running a business comes with overheads. You need to retain revenue and plan for ongoing overheads. Yes you can reduce it by having good processes and doing as much as you can yourself. But it is also just a cost of doing business that advisers need to cater for.”

Steve Burgess of the Compliance Refinery says that one of the major cost-factors for an adviser’s compliance expenditure is data.

“Data is massively important. If you have good data then you can better understand the risks in your business. A director may be able to look at a dataset and say ‘we have a lot of clients who fit into a normal range’. Whereas right now a lot of compliance is based on file review, most of those are just complete guesses in the dark.

“Data gets you to a space where you can better understand what you are doing, and so better make sure that you are compliant.”

For Burgess, data is not the only factor that is key to cost effective compliance.

“You have to think about it from an economic point of view. There are two ways to offset an increase in costs. One is to get more efficient. Advisers need to consider how they are utilising support technologies in their business. Two is to increase your revenue.

“You can only offset increasing costs for so long. You have to get more productive and you have to get better processes. Compliance is just simple processes done consistently.”

Ultimately for Burgess there needs to be a split in the duties within adviser businesses.

“The best thing you can do is have an adviser doing only adviser duties and support staff doing support staff duties.”

Daniel Relf, ceo of Strategi Group, also believes that “having good company data will make compliance easier.”

“For example, if you have good company data in relation to which products financial advisers are recommending and the associated commission, you will be able to understand how effective your conflict of interest policy, processes and controls are and make changes if necessary.”

Like Burgess, Relf believes that technology is key for the adviser wanting to cut their compliance costs. “There is a huge opportunity for advisers to use technology in a creative way to operate the business in a more efficient and compliant way.  There is the cost of investing in technology, but provided the technology brings about efficiencies and enhances compliance, the ongoing cost of compliance should be reduced.”

Tags: compliance Compliance Refinery Karty Mayne Rosewill Consulting Steve Burgess

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