Are you confident that your financial planning software isn’t exposing your firm to unnecessary compliance risk? This blog takes a look at how adviser and firm compliance can be optimised through a comprehensive financial planning compliance checklist, and what to consider when creating the checklist and assessing your software.
Compliance is an important and ongoing consideration for financial advisers and firms that impacts each step of the financial planning process. Your financial advice needs to be sound, suitable and compliant with the latest regulations, and it’s important to ensure that your financial planning software doesn't expose your firm to unnecessary compliance risks.
By using a comprehensive financial planning compliance checklist, advisers can assess the effectiveness of their processes and software and amend as necessary to meet regulatory requirements and confidently provide compliant, thorough financial plans to clients, consistently.
For the protection of consumers and firms alike, the financial compliance landscape takes great strides in ensuring adviser practices are continuously above board and effective so that firms can provide clients with the best advice possible. Generally speaking, regulatory bodies like the FCA are comprehensive in their approaches to regulation, although focus can shift to specific areas at different times, such as defined benefits transfers or suitability.
When it comes to establishing your own financial planning compliance checklist, you need to keep several key compliance factors in mind when serving clients, namely:
Compliance breaches are a concern with significant impacts for both clients and advisers. For clients, non-compliant advice means the risk of financial plans not meeting their goals, subsequent losses or, at the very least, additional stress around the suitability and efficiency of their plans. For advisers, the effects of non-compliance include fines, increased professional indemnity insurance, a loss of brand trust and reputation and increased effort spent resolving issues that could have been avoided.
Having a financial planning compliance checklist helps to ensure all key regulatory considerations are accounted for and enables you to align your advisory processes and software capabilities with your policies and compliance obligations, reducing the risk breaches.
It should be a living document that's reviewed regularly and updated in accordance with changing regulations, and subsequently cross-checked against your firm's processes and software solutions. This will help you to identify any gaps and implement any required changes efficiently to maintain compliance.
Digital software solutions can be incredibly helpful to advisers when assessing and ensuring compliance. Effective compliance solutions can identify, measure and monitor particular business risks to indicate if processes are robust enough to handle such risks or need to be adjusted. Software can further mitigate compliance risk by providing up-to-date figures and calculations, including tax updates and assumptions, a clear track record of responses and outcomes, risk-based sampling and quick and accurate validation that can’t be achieved with traditional manual processes.
The most effective financial planning tools, like those offered by EV, can complement an adviser’s financial planning compliance checklist by:
However, poorly implemented and maintained software can hinder rather than help your compliance efforts. Perhaps your technology is outdated and no longer fit for purpose, or maybe you’re unable to effectively track all activities or retrieve audit trails to demonstrate compliance. Loss of data or data leaks due to technical faults and insecure data storage can also create compliance issues. When leveraging financial adviser software to support compliance, your financial planning compliance checklist should outline issues that went undetected in previous processes and if any existing plans or advice need adjustment in line with new insights the solution provides.
When compiling your own financial planning compliance checklist and ensuring your software solutions support your efforts and don’t expose you to risks, it’s vital to be as thorough as possible to avoid gaps in process and software alignment and possible non-compliance.
Below are the top considerations to include in your financial planning compliance checklist concerning your adviser software.
Although market factors are important for ensuring a plan’s suitability and success, the most efficient stress tests take much more into account. For example, higher ongoing expenses, ill health that impacts income, a permanent market correction and unexpected emergency expenses should all be included when running comprehensive stress tests. Currently, the market runs a minor stress test based on only a small number of market risks, using either a single drop in value or historical data.
Insufficient stress tests can be a threat to financial compliance when unaccounted for risks come to fruition, resulting in plans needing to be corrected - even after an adviser has confirmed a plan’s stability with their client. As such, robust stress testing needs to be included in your financial planning compliance checklist. Software solutions that offer more comprehensive tests, completed in as few clicks as possible, are key for ensuring plans remain on track and that advice is consistent across clients.
Ensuring plans optimally match a client’s risk profile is crucial for ensuring the plan’s success. The suitability of plans in relation to client risk has come under scrutiny by regulatory bodies, so advisers need to take extra care when assessing a client’s attitude to risk and devising a plan that suitably aligns with their risk profile. Understanding attitude to risk is also crucial for understanding clients’ capacity for loss and whether they can afford to bear losses and to what extent. Having a full picture view of a client’s goals, risk appetite and capacity for loss are mandatory for ensuring the suitability of their plans.
When selecting a software solution to meet your financial planning compliance checklist requirements around risk, check the tool’s risk profiling capabilities, consistency of risk descriptions and benchmarks and how capacity for loss is calculated.
Audit trails of adviser activity are necessary for proving that your firm’s advice process is compliant with the regulatory framework. As the world becomes increasingly dependent on digital record keeping solutions, outdated methods of storing data can be risky to your firm’s compliance. You need to ensure you have efficient solutions and processes for this purpose.
Your software should enable you to identify clients at risk and create bulk reviews at a firm and adviser level, while also providing secure data keeping and activity and due diligence tracking. The right adviser software solution can streamline your record keeping process, ensuring you meet regulatory requirements.
EV’s end-to-end financial planning tool, EVPro, creates a suitability and planning solution that helps advisers and firms minimise the risk of providing unsuitable advice. With EVPro, advisers can provide risk assessments of both clients and investments, and fit these considerations into client plans and cash flows using underlying assets and their risk characteristics.
EVPro equips advisers with fully integrated modules to create consistent results based on a realistic range of assumptions so that a client plan can work in all circumstances, and that clients’ expectations can be correctly managed from the outset.
Compliance need not be a hassle for advisers when a comprehensive financial planning compliance checklist ensures your software solutions can enable your firm’s regulatory obligations. By developing this checklist and using it to measure your software’s effectiveness, you can either be confident that your software doesn’t expose you to unnecessary compliance risk or amend/update your software as required.
If your software doesn’t adequately prevent compliance issues, our guide to Choosing the Best Financial Adviser Planning Software for Your Firm can help you identify areas for improvement in your tech stack and get you on the road to full compliance confidence.