“Don’t engage your spouse as a director, unless your spouse actually works in the business.”
That was one of several pieces of advice from Strategi Group founder and executive director David Greenslade when he spoke at the Auckland leg of the Financial Services Council of New Zealand’s (FSC) Future Ready Advice Summits.
Greenslade, whose camp helps businesses reach compliance and who himself has been a financial adviser for 30 years, believes there are key things financial advice providers (FAPs) must work towards amid the current regulatory environment.
For the Strategi Group owner, it’s not enough to just meet the minimum required.
“My first piece of advice is never get into that sort of situation where you aren’t a willing complier; don’t barely meet the standards,” he said. “Assume that standards and expectations of consumers, regulators, and everyone else are constantly improving, so you need to position your business well and truly in the safe territory. So, you’re a willing complier, as opposed to being a minimalist.
If engaging third-party firms for compliance and best practice purposes, Greenslade’s advice is to do so as early as possible, instead of “way too late” in the process. He also pointed out the importance of running a profitable business, which will allow FAPs to afford to have the right people and right outsource providers.
So, what exactly is a ‘willing complier’?
“A willing complier has a relentless focus on their clients and making sure that you’ve documented your advice, remembering that the advice and the standard that the FMA is looking to you to achieve is exactly the same standard as those case studies you did when you completed your [New Zealand Certificate in Financial Services] Level 5,” Greenslade said.
“And if you think back and you go ‘holy smoke... there’s no way I’m going to do this in real life’, sadly, that is the standard that we have to meet because that’s what the code says. So, a willing complier builds all of their files to the same standard as if you were submitting them for your Level 5 assessment.
“Record-keeping is absolutely vital around that… So, if the FMA asked to see your files, you need to be able to put your hand on your heart and say every one of these would pass my Level 5 case study.”
Financial advice providers range in size – from individuals to larger entities – but while how good governance looks for these operations is not the same, it doesn’t mean single-adviser FAPs shouldn’t be as keen.
“When you go and read all of the Institute of Directors stuff [and] most of the FMA stuff, it talks about the bigger end of town with big boards and committees and all of that sort of stuff, but the vast bulk of New Zealand FAPs are one- to two-person operations with either a sole director or maybe two directors,” Greenslade said.
“So, for example, what we do varies from different firm to different firm, but one of the ways we do it with a single advisory business is they may appoint myself or someone like ourselves not as a director but as an advisor to them. So, they get into the habit of having quarterly board meetings with themselves but we would be present, so it forces them to have to have an agenda, to follow a structured meeting format… and they will take some minutes.
“And then it’s an opportunity for them to step back from their business and consider their FAP from a governance perspective, as opposed to from the day-to-day management perspective. And then, obviously, as you grow your business, you may bring in an independent director, or you may have a staff member or fellow advisor – he or she then becomes a co-director.”
Greenslade’s strong advice? Don’t get the spouse involved if they’re actually not.
“Don’t engage your spouse as a director, unless your spouse actually works in the business, because directors take on significant personal liability,” he said during the FSC event. “And if your spouse isn’t a day-to-day part of the business, why have him or her taking on that liability when they really have no control over it?”
Aside from putting the wrong people on board, one mistake Greenslade sees is how businesses often approach risk from the wrong perspective.
“As a small or medium-sized business owner, we should be looking at risk and going, ‘What is the biggest risk to our business?’” he said. “And the answer for me is inability to make any money. And so you go, ‘Geez, what’s going to stop me from making money?’ Well, that could be, I lose my licence or my licence is suspended, or if there’s a complaint and I’m kicked out (if I’m a mortgage-based FAP) of an aggregator group. So, therefore, I can’t go and join another group while the FMA has got some form of investigation underway.
“So, what you’ve got to look at is, if loss of license or suspension of license is my single largest risk, then what do I need to do to ensure that doesn’t happen? Sure, cybersecurity is all important, but that’s lesser risk than not being able to run your business, really, from that sort of perspective.”
Greenslade lamented that people would often pay more in insurance premiums than what it would cost them to run the compliance side of their business correctly.
“It’s extraordinary the amount of money people are paying in professional indemnity [insurance], whereas the cost of running, say, a virtual compliance officer-type solution might only be 50% of your insurance premiums,” he said. “And yet we pay insurance and still run a non-compliant business.
“So, you got to put your money where your focus needs to be, and constantly think about your clients. Because if you’re running a good compliant business, it means you’re probably doing the right thing by your clients, which is really important, remembering we’re all under the Financial Markets Conduct Act. And the word ‘conduct’ is the key word in this – it’s doing the right thing by our clients all the time.”
Aside from Auckland, other legs of the FSC’s Future Ready Advice Summits were in Christchurch and Wellington. In August, the FSC is holding its annual conference, with this year’s theme centred on building consumer confidence.
