The Transformative Impact of AI on Compliance in Financial Planning

The financial planning industry has long grappled with the complexities of compliance, driven by ever-evolving regulations and increasing demands for transparency. The introduction of Consumer Duty?has further heightened these expectations, requiring Financial Advisers to ensure that their clients receive fair value and are treated with the utmost care. ?

So many of my conversations around AI with Advisers focus on the efficiency of the advice process and compressing the time it takes to deliver advice but a major concern in the industry at the moment is compliance. ?

For Advisers,?AI can do the compliance heavy lifting automatically and enable them to focus on the client engagement, removing the anxiety of things being missed, and for compliance teams and business owners, it is increasing the visibility across client engagements and creating very comprehensive client?profiles. ?

Let’s explore how AI is revolutionising compliance processes, shifting the industry from traditional spot-checks to ongoing monitoring, promoting best practices, and ultimately reducing the manual compliance burden on Advisers.?

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From Spot-Checks to Ongoing Monitoring?

Compliance in financial planning has relied heavily on periodic spot-checks and manual reviews. Whilst these methods were the only viable option historically, they have significant limitations, including the potential for human error and the inability to catch compliance issues in real-time. The advent of AI is changing this paradigm by enabling continuous, real-time monitoring of client interactions.?

AI algorithms are designed to process vast amounts of data at incredible speeds, identifying patterns and anomalies that might indicate compliance risks. This capability allows firms to monitor their operations proactively, catching potential issues before they escalate. For example, AI can automatically flag unusual client transactions that may require further investigation, thereby reducing the likelihood of non-compliance with regulations like Consumer Duty.?

This shift from reactive to proactive compliance monitoring not only enhances the accuracy of compliance checks but also frees up Advisers' time to focus on more strategic tasks. As noted by several industry experts, this real-time monitoring capability is one of the most significant advantages AI offers in the realm of financial compliance. ?

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Promoting Best Practice

AI's ability to continuously analyse and update client data is instrumental in promoting best practices within financial planning firms. One of the critical challenges in compliance is ensuring that client profiles are complete and up-to-date. Incomplete client information can lead to poor advice and, ultimately, non-compliance with regulations.?

AI systems can automatically cross-reference and update client data from various sources, ensuring that Advisers have a comprehensive and accurate understanding of their clients' financial situations. This is particularly important in the context of Consumer Duty, where Advisers must demonstrate that the financial products they recommend provide fair value to their clients.?

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Reducing Compliance Anxiety and Enhancing Adviser Focus?

When I speak to Advisers, especially those that are adviser, compliance and business owner rolled into one, the compliance requirements can be overwhelming and often lead to anxiety and reduced productivity. The need to stay updated with the latest regulations, combined with the pressure to ensure that all client interactions are compliant, can detract from the time and energy Advisers have to focus on their clients, an undesirable outcome for the industry. ?

AI serves as a powerful tool to alleviate this burden. By automating routine compliance checks and providing real-time alerts for potential issues, AI reduces the manual workload associated with compliance. This not only diminishes the anxiety Advisers feel but also allows them to dedicate more time to building relationships with their clients and providing personalised advice.?

Additionally, AI's ability to ensure continuous compliance means that Advisers can have greater confidence in their processes, knowing that the technology is constantly working in the background to identify and mitigate risks. This shift in focus from compliance to client engagement is a critical factor in enhancing the overall quality of financial advice provided. ?

Consumer Duty Reporting and Fair Value Assessments?

One of the most critical aspects of the Consumer Duty regulation is the requirement for firms to conduct fair value assessments. These assessments are designed to ensure that the service offered to clients provides good value, taking into account the costs, benefits, and risks associated with each product.?

AI is uniquely suited to assist with these assessments by analysing large datasets that would be impractical to review manually. For example, AI can evaluate the performance of a wide range of financial products, comparing them against market benchmarks and client outcomes. This comprehensive analysis enables firms to demonstrate that they are meeting the fair value requirements set by the FCA, thus ensuring compliance with Consumer Duty. A really onerous task for firms to carry out and one that be done for you in the not-so-distant future, a very promising shift. ?

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?Training and Development ?

The financial planning industry faces the ongoing challenge of attracting and training new talent. There has been a significant drop of 60% from August 2022 to February of this year of Advisers under 25 and the number of Advisers aged over 60 has jumped?29% across the same period (FTAdviser). ?

Currently, when I asked Financial Planning business owners what limits them bringing more Advisers into the company, the responses tend to be one of these two:?

1 - Team Resource - ‘If I bring in another adviser then I need a Paraplanner and support to help them’ ?

So recruiting isn’t just for one person it seems. It involves recruiting a ‘pod’ that can deliver that advice. This is a very expensive risk for a new adviser that is not likely to generate revenue for some time. ?

2 - Training - ‘I don’t have the time to get a new adviser up to speed’ ?

For smaller advice businesses, stepping out of the day-to-day to train a new adviser is not an option. Most Advisers are working at max capacity so they need an adviser to come in with their own clients and the technical ability to hit the ground running, hard to find! ?

Problem 1 I think can be tackled with increasing the capacity of the support team to work with more Advisers and improving the Adviser to Paraplanner ratio through automating processes and improving the movement of data around the industry. Problem 2 can be tackled through AI doing the training for you. ?

AI can serve as a continuous and highly personalised learning tool, monitoring interactions with clients and providing real-time feedback on compliance performance. This not only helps new Advisers quickly identify areas where they need improvement but also ensures that they are meeting the required standards as they progress towards competent adviser status and beyond. ?

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The Future of Compliance with AI?

As the Financial Planning industry continues to evolve, the role of AI in compliance will only become more significant. The ability to conduct continuous?reporting and assessments, in line with Consumer Duty requirements, ensures clients receive the best possible service and value from their financial Advisers without the firm being crippled but the required reporting. ?

Now is the time to explore AI tools that can automate and streamline your processes, enhancing both compliance and client outcomes. Whether you're a business owner looking to scale or an adviser aiming to improve efficiency, AI can help you stay ahead of regulatory demands while delivering exceptional value to your clients.?

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Further Reading and Resources?

- Consumer Duty Alliance: Explore their forums and resources on AI's role in compliance.?

- FTAdviser: Regular updates and insights on AI in financial services compliance.?

- Financial Planning Today: In-depth articles on the impact of AI on financial planning and compliance.?