InvestTech 2020 - The licensee and technology

By Jayson Forrest - Managing Editor  - IMAP Perspectives

Although ASIC is quite vocal about the use of technology by advisers to facilitate cost-effective advice for Australians, as an industry, we have struggled with technology for some time. And while COVID-19 has seen a large uptake in technologies, such as video conferencing tools and digital signatures, these options have been available for a number of years, yet prior to the pandemic, the take up of these technologies was poor.

Whether you’re a small or large licensee, the technology you use is extremely important. However, in the past, many licensees were relatively hands-off in terms of technology. This led to a myriad of issues, such as remediation problems, the inability to access files, and the inability to monitor and supervise advisers.

So, a licensee that embraces technology, can use that technology to streamline its business, while removing many pain barriers that advisers might experience when using technology.      

However, there are a couple of the legal obligations licensees need to first consider when using technology.

Under Corporations Act s912A there are three points relevant for technology that AFS licence holders need to be aware of. They are:

• A licensee must do all things necessary to ensure that the financial services covered by the licence are provided efficiently, honestly and fairly.
• A licensee must take reasonable steps to ensure that its representatives comply with the financialservices la
• A licensee must have available adequateresources (including financial, technological and human resources) to provide the financial services covered by the licence and to carry out supervisory arrangements.

In terms of the first point, it’s hard to do this efficiently without using technology, while in the second point, technology can assist by producing compliance documents or monitoring ongoing advice obligations. It’s the third point where a number of licensees have fallen down in the past.

When it comes to technology, often the first thing people think about is cost. But control and standardisation of technology brings a range of benefits for the licensee, including:

Scaleability: With scale, the licensee has the benefit of having a number of people under the licence share the responsibility and testing of technology, which also provides economies of scale.

Record-keeping: A key benefit of using technology is record-keeping, which is an obligation required of licensees.

Data/document consistency and version control: When you have a central system, you can control so much more. For example, you can do technology releases or updates at night, knowing that the new version will be operating the next day.

Practice efficiency: Advice practices are effectively outsourcing the technology to the licensee. This means the licensee does the testing and undertakes the due diligence for advisers, enabling them to focus on their business.

Reporting capabilities for licensee and practices: This involves practices using technology to monitor, supervise and analyse data at a granular level, particularly in terms of revenue and clients. 

Customised to your needs and compliance requirements: A licensee can build or customise a system to suit their requirements and how they want their advice processes to work. 

Remote audits: Technology can be used to access files remotely for auditing. This not only saves on travel costs but ensures licensees have consistency with their audits between practices and reviewers.

Improved privacy and security: As a result of COVID-19, many advisers are now working remotely from home, using home virtual private networks (VPNs) or home wireless. Using appropriate technology, licensees can provide advisers with the right level of security to enable them to work remotely. 

Recruitment and retention: For licensees that invest in technology, they have the advantage of attracting advisers wanting to work in a technologically advanced business.

The benefits of using technology are not just for the licensee, there are also numerous benefits for the adviser. These include:

Compliant process: If the system is set up for you, advisers simply need to follow it, including following the checks and balances. This ensures the adviser and practice remains compliant.

Task completion/bottleneck tracking: In terms of workflow, technology enables you to look at task completion and track bottlenecks. The worst thing for a business is finding out there has been a problem but you didn’t know about it. Instead, you can improve your services by tracking them.

Revenue per client/segmentation: You can use technology to gain a deeper understanding of your clients and client type, and the value achieved through each segment.

FDS/opt-in monitoring and provision: When ASIC released its report into FDS and opt-in, 50 per cent of licensees didn’t have a system that told them when a client was due for an opt-in or had a process in place to turn the fees off. Technology will enable this.

Alert reporting before issues become a problem: Compliance drives so much of what advisers do. Therefore, automatic alert monitoring and reporting helps advisers remain compliant with their professional obligations. 

Improved practice valuations: Practices that have electronic files that are well maintained, have a higher business valuation. No business owner or adviser wants multiple filing cabinets, or to have to undertake a scanning process prior to sale. Having digital records improves business efficiency and practice valuations.

Due diligence and ongoing monitoring completed by the licensee: A significant benefit of technology is that advisers are not taking time out of their business to do due diligence, which is instead completed by the licensee.

Technology trialing/testing/development/maintenance completed by the licensee: This frees up considerable time for advice practices and advisers.

When it comes to technology, there is no ‘one-size-fits-all’. The choice of technology depends on licence obligations and scaleability, as licensees come in all different sizes. So, what might be right for a licensee with five advisers, might not be the right fit for a licensee with 20 advisers.

We were one of the first licensees to mandate our software in about 2012. We made it clear to advisers that if you wanted to join our licensees (ClearView and Matrix), you needed to use our technology system.

We were also one of the first licensees to mandate record-keeping on the system in 2015. We required electronic files, so files were back-scanned, which meant we had all those files on the system.

For us, mandating our technology offering was a good move. This enabled us to have a central system, where we’re able to generate reporting from a single system. Another benefit of mandating our software has meant that although we have continued to deal with legislative changes, we haven’t had to move systems to continue our monitoring and supervision of advisers. This means we haven’t been distracted by these regulatory changes, because we already have a technology system in place that can deal with these changes.

However, this has meant we have had to invest heavily in our technology, process and systems, which we continue to support, develop and review. A big part of this is our in-house support and development team.

Whether licensees decide to go in-house or outsource their support and development, will largely depend on their size. Our in-house support and development team has enabled us to be nimble and move quickly with our technology when required to do so. For example, when we need to roll out a new project, we can do that quickly, without having to spend a lot of time briefing external developers.

A definite benefit of our in-house support team is the range of people we have in it. This includes former advisers, people who have been support staff working in practices, right through to paraplanners and individuals who have worked in the product side of the business. So, we’ve got good depth of financial planning knowledge across our support team that underpins our software capability.

There are many things that licensees need to consider when they are looking at software, including where they are going to source the software functionality they need and how they are going to integrate this software into their system.

And while it can seem daunting, the best place to start is working out what are the key things you need your technology to do. These are your ‘non-negotiables’. That’s where you need to start.

We have adopted a ‘core system’ approach with our software. For us, our ‘non-negotiables’ included advice generation, record-keeping, remuneration, and compliance monitoring.

So, just as advisers have a ‘core satellite approach’ with their investments, we’ve got a core approach for our system. And working off our core system, we have a satellite approach for other client-facing API (Application Programming Interface) add-ons, like digital fact finds and client wealth portals.

Whether you are looking to integrate software or have a core system, you need to remember that while the integration of software can work seamlessly, that’s not always the case. You can look at best of breed offerings with good functionality, however, if these offerings don’t talk to your other systems or integrate correctly, you’re going to have a problem.

Another issue of using multiple systems is that users don’t know which system they are supposed to use for a particular task. So, when you are considering whether to integrate or have a core system, these are issues you really need to be quite clear about.

For example, I have seen one licensee that was keen on having the best of breed of everything. The licensee hooked up four different functions to different systems. However, nothing worked. The software systems didn’t talk to each other and no-one knew what they needed to do. So, after two years, the licensee decided to cut its losses and go back to a core approach, with a few add-ons.

We use our own brand of Xplan called CWT. Our tech stack includes the core system, with a number of client-facing APIs, such as digital fact finds and client wealth portals, including AdvisorForms, myprosperity, Sorrento, CWT Touch and Zoom.

Sitting across the top of these, we have Lumen Compliance, which extracts data for compliance and alert monitoring, while another system - Red Marker - analyses marketing and advertising content for compliance risk.

All of that together makes up our system. We have the core system that talks to the APIs, and we have the monitoring that sits across the top of this.

However, with software, not everything always works the way you would expect it to. I often find that when you have a demonstration from a software provider, everything looks great and you want to integrate it into your system, but then when you actually try it yourself, the software isn’t up to your expectations. My advice is, don’t be afraid to try new software but also don’t be afraid to cut your losses when things aren’t working.

The trial and error process of testing technology is one of the key things a licensee can do for its advisers. Advisers are time-poor, with increasingly more time having to be spent on compliance, instead of spending more time with their clients.

But a licensee can trial technology and roll it out once it’s confident it can be successfully implemented within the existing system and help provide efficiencies across the business.

Technology changes and improves rapidly, with new offerings appearing on the market regularly. So, it doesn’t matter how good your technology system is, if you’re not going to upgrade it and maintain it, it will quickly become obsolete.

One of the key areas of technology where I see people make mistakes, is not seeking feedback from users. Seeking feedback from your users is absolutely vital for improving your system, like building in options for advisers, which gives them the flexibility they need with using the system

Extracting data easily and efficiently out of a system is definitely key for any successful business.

For example, if you receive an ‘ASIC notice’, you will only have a couple of weeks to provide ASIC with the required information, which means you either need to have a system in place to extract that data or there are going to be some long nights trawling through files trying to find the required information.

However, in terms of your legal requirements, the Corporations Act s912A states that: A licensee must have available adequate resources (including financial, technological and human resources) to provide the financial services covered by the licence and to carry out supervisory arrangements. But if you can’t gather the required information in a reasonable timeframe, there’s a chance that ASIC might decide you don’t have sufficient resources to provide your services.

For us, we had a lot of data in our system but as a responsible manager, I wasn’t able to retrieve the data I needed and in a format that I would be able to easily look at for early detection of specific issues. So, we implemented a system that had real time compliance monitoring and alerts. The benefits of this system included: proactive alerts, the ability to do ASIC reporting quickly and easily, practice reporting, trend identification, and board reporting.

Our system monitors about 800 SOAs and 900 ROAs every month, and also monitors the ongoing service provision for approximately 30,000 clients. The system allows us to identify if a planner is continuously recommending the same strategy, which might indicate cookie-cutter advice, or if a planner is potentially recommending a high risk strategy.

In such cases, we can look at our risk profiles based on the different ages of clients. We can very quickly look at an adviser’s whole client base, see what risk profiles are being used and whether there are any trend issues happening with clients. This enables us to quickly investigate issues like inappropriate investment strategies, and act accordingly if required. 

Therefore, a licensee that embraces technology, can use that technology to streamline its business, while removing many pain barriers that advisers might experience when using technology.  

Tanya Seale is Chief Operating Officer at LaVista Licensee Solutions. Tanya is a responsible manager for over 200 advisers