Synchron: Compliance, SOAs and vertical integration

by |

The measure of a good dealer group has changed in the past 18 months, according to Synchron director Don Trapnell.

Trapnell's risk-specialist dealer group now has around 280 authorised representatives. Eighteen months ago, the issue of money always came up early in his discussions with advisers, but Trapnell says now advisers are more worried about being protected in the event of ‘ASIC knocking on the door’.

“I’m not quite sure if the change is a result of ASIC getting very active and very vocal. I’m not sure if the change is a result of FoFA coming through and people becoming more conscious of compliance, I’m really not sure. However, it is a definite change and a definite trend away from chasing the dollar but more chasing the safety of advice.”

His formula is to tailor a compliance regime around clients rather than the licensee. “We worked it out that the best way to protect our license, was to protect our client. If you had a client that was fully informed, you had less chance of being sued.”

This starts with the statement of advice. Trapnell says they have a three-page SoA because that is what the client is more likely to read, rather than a 30-page SoA, and is more likely to pass the reasonable person test.

“The proof in the pudding on that one is the Storm model. Storm financial had a 126 page [SoA]. The clients signed every page – not initialed, signed…and the courts upheld it, they said a reasonable person wouldn’t read it.”

Running a licensee is about more than just compliance, says Trapnell. Although the compliance is a big part, and must be spot on, running a licensee is also about giving services to advisers and giving services to clients. He says that this would be hard for any licensee with less than 100 representatives, because they do not have the critical mass needed to fulfill compliance requirements as well as everything else.

CoreData just released its Licensee Research Report, which showed that more than 50% of advisers in the industry had been approached by one or more licensees in the past 12 months, asking them to switch licensee. Only 14.4% indicated a likeliness to switch.

Compliance support is still the most utilised licensee support service, followed by education and training, and technical services. All three experienced an increase over the past three years.

Product independence and compliance support also increased as factors to attract advisers to join a licensee, but remuneration was selected by the highest proportion of respondents, at 62.5%.

Trapnell has expressed concern that with the loss of non-aligned licensees, vertical integration models will do little to address the issue of conflicted advice.

“The challenge comes when distribution and product are owned by the same organisation. I’m not saying that a product manufacturer should not own a licensee, but they should not be permitted to direct the traffic, to provide advantageous terms for advisers that use their products. I believe that is conflicted remuneration in its rawest possible sense.”

Claims that the Best Interest Duty will stamp out conflicted advice are “rubbish” according to Trapnell, and while he is against any form of conflicted remuneration, he has welcomed news that the ban has been delayed to work out finer details.