​Why your old people practices won’t cut it post-Royal Commission

By Alison Williams on 21st of Aug, 2018

Source: goodluz /

In this article, we’ll explore why your people strategy is crucial for financial planning practices to regain client trust – from when advisers come on board, as they provide financial advice to clients, through to when a practice is being sold.
The general public has been shocked by some of the evidence heard in April by the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry. Tales of clients being misled, questionable advisers being re-employed and administration staff impersonating clients do not make for an edifying impression of the financial planning sector.
But, according to Debra McQuinn, Principal of Strategic Resources Network, who specialises in consulting on people issues to the Australian financial planning sector, very few financial planning practices are facing up to the new reality of increased scrutiny by the regulator ASIC and the public. Practices need to get their house in order now, she says, because if they don’t they won’t have a business to sell. And ensuring they have the right people and behaviours is a critical part of this house-cleaning exercise.

You need the graduates more than they need you

Recruitment is more important than ever for financial planning practices. The profession is in transition with as many as 50 per cent of advisers tipped to exit in the next few years due to a combination of factors such as new educational requirements, the anticipated clean out in the wake of the Royal Commission, and many older advisers retiring.
It is difficult enough for practices to identify and recruit calibre advisers with the required qualifications in this climate McQuinn says, but it’s not just their qualifications which she sees as an issue: ‘It is common that this cohort of newcomers know more about the obligations in the industrial relations framework and their entitlements than the business owners do,’ she says. 
She’s aware of one practice where an employment offer was made to a paraplanner who promptly sent an email back to the practice principal declining the offer and drawing to his attention to all the non-compliant clauses in the employment contract as well as numerous other errors, along with the suggestion that the business was ‘unprofessional’. McQuinn finds younger candidates to be enquiring, knowledgeable and Google-smart, as well as having a very strong sense of fairness. They can easily check when they think there is something wrong – and they do.
Another recent story concerned a mid-sized accounting firm. A partner told how they had recruited a graduate who started at nine o'clock on Monday and had resigned by noon. This time the message was “you are dinosaurs – there's too much paper in this office”. 
Practice principals are now in a new environment where they are competing for the best talent and their business practices and systems form a crucial part of their attraction strategy. However McQuinn provides a cautionary note to practices that before going down the path of offering attractive conditions such as flexible working arrangements, it’s vital that the business take the time to risk assess and implement any necessary policies, such as a ‘working from home’ policy.

Yes, the rules do apply to small businesses

Once a new adviser is on board, McQuinn says many financial planning practices think that because they’re small, they don’t have to take notice of the Fair Work Act and work health and safety (WHS) regulations. Attached to this attitude is a ‘fly by the seat of your pants’ approach common to most small businesses, regardless of the sector. This kind of lax approach has found practices with workers comp or bullying claims from stressed staff, harassment claims, or adverse action claims from dismissed staff. A common misunderstanding is that if a business has fewer than 15 staff it can dismiss an individual without repercussions. However, under Fair Work there is a difference between unlawful conduct and unfair conduct and the former exposes the business to uncapped damages. Practices also do not understand how to manage performance issues, believing wrongly that they can make the individual ‘redundant’ and can then simply advertise again without having dealt with the matter appropriately. 
If the practice doesn’t have up to date employment contracts and policies, it’s common for the principal to call associates in their licensing network and ask for whatever documents they’re using. While their motives are good in trying to assist each other, this creates real risk to the business as the documents are not necessarily compliant and could have been written 10 years ago – or worse.

The case for leadership – and robust position descriptions

In tandem with better compliance with employment laws, practice principals must show leadership to create an environment where it is not acceptable for advisers to flout the laws regulating their profession. McQuinn identifies a lack of accountability which allows situations such as the infamous case before the Royal Commission where a practice staff member impersonated a client to go unchecked. This lack of accountability extends to many practices having poor or no position descriptions nor measurable key performance indicators (KPIs) for their advisers. Poor behaviour can also be managed much more effectively if the individual has a well-designed employment contract and the business has effective policies governing employee behaviour and protection of client information. ‘Many practices don't have any of these,’ McQuinn observes, ‘but even where they do, they’re not standing up when there’s an issue. For example, the Adviser may have a contract of employment, but it won’t include a code of conduct. Or the contract could be an informal one. Some practices don't have any bullying and related policies in place and when issues arise – and they have – and there is no leadership expertise to manage them, the water gets very murky and costly.

ASIC: show us your Balanced Scorecard

It is well known that ASIC has the spotlight on financial planning practices as a result of the Royal Commission. As part of its investigations McQuinn says ASIC is asking to see not just a practice’s processes, but how it is managing its advisers’ roles, including their KPIs: ‘show us that the individual actually knows what is expected of them’.
Consistent with ASIC regulation RG246 which was brought down in 2015 recommending a ‘balanced scorecard’ approach to conflicted remuneration, practices must demonstrate that their financial advisers are being remunerated and incentivised in a way that is consistent with their clients’ best interest and is compliant with the law. The only way for ASIC to understand how the KPIs are determined is to have robust, documented position descriptions containing team-aligned behaviours, signed off by all affected individuals. Then the practice has something in place to protect them. But note that practices also need to make sure they train their people – it’s not enough for either ASIC nor Fair Work to ‘set and forget’.

Good HR policies and your exit plan  

With so many practice principals seeking to exit the industry over the next six to seven years, obtaining a fair price for their business will come down to demonstrating that it is well run and doesn’t have any nasty skeletons in the closet. Business brokers in the industry say that nobody is interested in buying risk. Sound HR policies are an essential business practice that will help persuade a potential buyer that there aren't any lurking issues. Additionally, businesses where advisers have robust employment contacts in place provide potential buyers with confidence that they and the clients will be protected if the advisers leave the firm.

The firms of the future

Financial planning practices in the current environment where public trust has been shaken need to focus on how do they restore trust by conducting a compliant and highly professional business – for those seeking to join a practice, for those they might sell their businesses to, and as an extension of that, for their clients so that they may trust them with their life savings. 

For those forward thinking practices already demonstrating a professional business approach, the future is very bright indeed!

If you would like a demonstration or are interested in purchasing F3P for your practice please contact us.