Home / In Practice / QAR fork in the road: Does your advice practice take a compliance or strategic approach?

An advice group can either shift its compliance settings to accommodate the reforms, or they can reshape their business strategy to take advantage of them. The different paths could lead to a bifurcated industry when all's said and done.

While the Quality of Advice Review reforms work their way through a labyrinthian ratification process, financial advice practices are readying themselves to adopt the first tranche of changes aimed at reducing red tape and improving efficiency.

But not everyone is approaching their response to the regulatory amendments in the same way.

Some practices are taking a ‘compliance led’ approach and looking for the simplest and least disruptive path to fitting the new parameters, according to Morningstar, while other advice groups are taking a more holistic, ‘strategic’ approach that involves a rethink on how they can holistically reshape the business to take advantage of the change.

“We’ve met people who’ve said: ‘We are absolutely going to take a compliance view. We’re going to minimize effort to the extent that’s allowable, but that’s it basically; we’re not going to do anything else,” explained Morningstar’s director of wealth products Rick Di Cristoforo this week. “Versus: ‘We’re taking a strategic view, there’s a massive opportunity here. I can take on a whole raft of new clients. Brilliant’.”

The two approaches aren’t exclusive to each other, Di Cristoforo explained. If advice groups decide to take the comprehensive route and reset the business, they need to start by ticking the compliance boxes anyway.

That point, however, represents what could become a significant bifurcation point in advice, with the practice of the future broken down into those that stop there, and those that dig a little deeper.

Hunting for more impactful change, of course, will come with more effort and cost. The Delivering Better Financial Outcomes package (as Treasury has called the reforms), will require all practices to conduct some degree of operational change. The first ‘tranche’ or reforms alone will streamline fee consent rules and reduce disclosure requirements, while also smoothing the path for advice fees to be deducted from super funds.

At a minimum, every firm will need to make adjustments for these updates.

A compliance-led approach might be adopted by an advice group that wants to continue doing things the way they always have, and who wants to leave things the way they are. They’d amend their documents and their processes to tick the new, more accommodative compliance boxes, but nothing more.

“Compliance-led means you think about how you do fee consent… how you might deliver financial advice… and obviously record keeping,” Di Cristoforo said. “That’s where you might leave it.”

For advice businesses that lean into the changes, however, more detailed questions will be asked.

“Then you can then think about: ‘What does this mean to my business? What does this mean to my client services?’ There’s a potential change in structure of what you do. You can potentially extend your services [or] think about pricing structures. You can think about your client book, [or] how you might deal with multi-generational client/family relationships,” he said. “There’s some really interesting nuances.”

Di Cristoforo acknowledged that a full scope-out of the entire suite of reforms, and how businesses can best reshape themselves to take advantage of them, is difficult given only the first of three reform ‘tranches’ passed the senate in July, with the second purportedly due before the end of the year.

“[I] understand that this thing is still in the early days of being put through regulation and being approved, but as it gets moved on… what extent is your business actually takes additional benefit from it?” he said.