Financial Planning Changes | How to survive and thrive in this new world

Upcoming financial planning changes due to the Royal Commission’s recent report mean tighter compliance requirements for your financial services practice.

But your business is already pushed to the max dealing with day-to-day administration, client consultations and reporting. Adding in the burden of understanding and meeting compliance – for example, increased education needs and extra documentation – may well tip you over the edge. 

How can you meet the new compliance demands without disrupting your practice? Unpack the changes below and learn how technology can help you...

New professional standards for financial advisers

On 1st February 2019, the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry handed their final report down. The report’s recommendations were designed to make the financial services market more accountable and transparent in its dealings with clients.

Those findings have been legislated into a set of requirements that financial advisers will need to comply with to stay licensed. The starting date for some of the conditions has already passed, while other conditions have a transition period before they take effect.

Regardless of timing, it’s extremely likely that the Royal Commission’s financial planning changes will affect your practice in some way.

Here’s a quick overview of the changes set to affect the financial planning industry, and some ideas for how efficiency-increasing technology can help you to meet them. Think of it as your guide to surviving - and thriving - in this new world.

What will the financial planning changes mean to you?

Recommendations from the Royal Commission 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 of these in detail.

NEW EDUCATION REQUIREMENTS FOR FINANCIAL ADVISERS

One of the major financial planning changes relates to the training and qualifications advisers now need if they want to use the terms ‘financial adviser’ or ‘financial planner’. These increased education standards aim to enhance the standard of financial advice given by the profession.

Degree AND industry certification

Under the new requirements, financial advisers must both:

  • have or obtain a relevant degree (Bachelor or higher), or equivalent qualification
  • pass a Financial Advisor Standards and Ethics Authority (FASEA)-approved exam.

FASEA defines a ‘relevant degree’ as one that contains at least eight courses, covering subjects such as financial planning, investments, accounting, tax law and banking.

The good news is that if you don’t already meet these requirements, there is a transition period for gaining the qualifications. If you were registered on the Financial Adviser Register on 1st January 2019, you have until:

  • 1st January 2022 to pass the FASEA exam
  • 1st January 2026 to complete your degree.

These dates were extended from the original requirements, and were announced on 30th August 2019 to allow all financial planners time to comply.

Depending on the education provider you choose, you may be eligible for Recognition of Prior Learning (RPL) to gain credits towards your degree.

Continuing professional development

The FASEA education requirements also specify that financial planners must undertake ongoing continuing professional development (CPD).

This obligation began on 1st January 2019, and consists of completing ‘40 hours of CPD each year, of which 70% must be approved by their licensee (including a maximum four hours of professional reading).’

Of the required 40 hours, 24 are split across four mandatory categories:

  • Technical
  • Client Care and Practice
  • Regulatory Compliance and Consumer Protection
  • Professionalism and Ethics.

The remaining 16 hours can consist of any other qualifying professional development.

This requirement aims to ensure all that financial advisers stay up to date with all relevant developments in the industry, including regulatory and technical changes.

Code of Ethics

Finally, financial advisers will also need to agree to abide by a new Code of Ethics from 1st January 2020. This will be a set of principles and values aimed at promoting ethical conduct and professional behavior.

All this retraining and learning will create an added strain on your business, both in terms of 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 1st July 2013, many superannuation, investment or insurance accounts provided financial advisers with ongoing payments, also known as trail commissions, from account fees. Reports very rarely itemised this commission however, so many clients were unaware they were paying it.

These commissions could then create a conflict of interest that might lead advisers to set up accounts that financially benefited them personally, without benefitting the client. To avoid this conflict of interest, legislation changes after that date banned setting up ongoing commissions on new accounts. Instead, clients had to give consent every two years for the ongoing payments to continue.

However, the legislation wasn’t retrospective. It assumed that those accounts would gradually transition to newer accounts that didn’t include the hidden fees, but this hasn’t been the case. Instead, money simply continued to flow from those existing accounts in payments called ‘grandfathered commissions’.

Huge financial impact

The Royal Commission has legislated to end all grandfathered commissions by 1 January 2021. If the payments must contractually continue, the adviser has to provide the client with a cash rebate or fee reduction.

A December 2018 poll by Professional Planner revealed that “a combined 42% of advisers still received either 15-25% (18.5%), 25-50% (11.5%) or over 50% (12%) of their revenue from grandfathered commissions.”

Meanwhile, Adviser Ratings estimated that removing grandfathered commissions would reduce the average financial adviser’s income by 42%.

Clearly, ending grandfathered commissions will have a huge financial impact on financial planners.

How you can offset this loss

If you’re one of the financial advisers impacted, you’ll need to develop strategies to cope with the significant loss of income. Perhaps, like many advisers, you were already heading for a fee-for-service model? If so, you now have a deadline, which may force you to make changes faster than you’d planned.

Making your practice more efficient is one way to ease the financial burden. Reducing your cost of giving advice via efficiency-increasing technology can help to keep your business profitable.

ANNUAL OPT-IN AND FEE DISCLOSURE NOTICE TO CLIENTS

To increase transparency in the profession and prevent hidden fees, financial advisers must now check in with their clients every year. During this check-in, clients must sign a renewal form to continue receiving services.

This means that each year, you'll need to provide each client with a written list of all the services you’re providing to them, and the associated fees.

This annual fee disclosure statement must outline all fees and charges, and you’ll need to send it to all your clients who’ve received advice from you for longer than 12 months. Each statement will need to show all ongoing fees for both the previous 12 months and the upcoming 12 months.

Full transparency also means you’ll need written authority from all clients regarding payment of any fees from their client account. This opt-in requirement means you need to seek your client’s agreement at least every two years to continue with existing fee arrangements.

These extra requirements add to the administrative burden of financial advisers. You’ll need better record-keeping to clearly show that you’re meeting your obligations.

INCREASED DOCUMENTATION TO PROVE CLIENT-FOCUSED SERVICES

Financial advisers also need a higher level of proof that they’re customising their advice for each client, rather than just recommending a one-size-fits-all approach.

This means 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 you to use a System of Record (SOR) and keep detailed records of all your client correspondence.

The 2019 Netwealth AdviceTech report stated that using technology to facilitate the financial advice process led to reduced time spent on administration and compliance in 57.7% of surveyed businesses.

Digitising all your documents and your automating workflows can help to 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 to meet its compliance obligations under the upcoming financial planning changes. Now let’s look at how Umlaut can help you make that happen.

DISCOVERY PROGRAM

Each financial advisory practice is unique and has its own distinct needs. That’s why our Discovery Program is a series of consultations with our experienced data specialists to help you identify the data management solution that meets your specific business and compliance needs.

Undertaking the Discovery Program will fast-track your way to compliance. We’ll find the gaps in your existing compliance needs, and recommend systems and solutions to help you plug them. Implementing these solutions – for example, data capture or workflow automation solutions – will make staying compliant easy for you.

And we then take the pain out of implementing the solutions for you by developing a plan, implementing rollout and conducting training. As a result, all changes happen smoothly and painlessly.

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ADVISORFORMS

We said above that implementing efficiency-increasing technology will play a major part in keeping your practice profitable.

Our advisorforms solution takes the time and manual paperwork aspects out of collecting and storing client data. It set up digitised forms for your business which then automatically populate into your System of Record.

You’ll spend less time and money on administration, and free up time that you could then use to – just for example – complete your new education requirements.

Plus advisorforms also helps to streamline all the additional administration requirements of gathering client renewals.

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XPLAN CONNECT

If you’re using Xplan as your System of Record, our Xplan Connect service will digitise and import all your old data into the system and assign it for you too.

Imagine the nightmare of proving compliance when all you have are paper files stored in archive boxes, or digital records spread across multiple hard drives. Our high-speed scanners will digitise all your files into a central, single source of truth for all your client records.

We’ll also map a path toward compliance with ASIC and licensee standards for your business, and ensure secure, easy-to-retrieve digital file management.

As a result, you’ll have complete peace of mind around proving your compliance.

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XEPPO

We also identified above the huge impact that the upcoming financial planning changes could have on your bottom line. So you already know that the more you can turbocharge your business profitability, the better you’ll weather the storm.

Our Xeppo solution pulls together client data from across your business, then presents it visually in a single dashboard. That means you get a consolidated view of all your client data, which can unlock analytical insights into your business. In effect, it saves you time and enables you to make better, more informed business decisions.

But Xeppo can do more than just improve your business efficiency, productivity and ability to provide a great client experience. It can also dramatically increase the transparency of your advice, which – as we discussed – will help you to meet compliance regulations.

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XPLAN DRIVE

Finally, we talked about how you now need to show clearer proof that you’ve customised your advice to your clients to their specific circumstances.

Our Xplan Drive is a secure custom document management system that integrates with XPlan. This solution makes it simple to save documents that relate to any given client directly to their folder. You can quickly and easily save copies of any correspondence or meeting notes, then just as simply retrieve them when you need them.

Xplan Drive is a simple way to reduce both the cost of administration and your compliance worries.

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Technology: reducing your compliance burden so you can survive, and thrive!

While the new financial planning changes may shake up the industry, they also provide an opportunity. And if you’re ready to take advantage of it, now’s the time to invest in our solutions.

Using technology to reduce your compliance burden will pay dividends by transforming your business into a streamlined, efficient operation that will blow your competition out of the water.

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XPlan Migration Guide

XPlan Migration Guide

In this FREE guide, we show you how to migrate all your data to XPlan in 8 simple steps.

  • Get compliance ready and protect yourself in case of audit.
  • Get your client data in a single easy to access location.
  • Easy to follow step-by-step guide.
  • Be able to self-audit so you know your business is safe.