Is the Australian Wealth Management sector at a crossroads?

Our 11th annual survey of Australian wealth management risk and compliance functions suggests they are at a crossroads.

The sector needs to regain trust: the trust of a sceptical public, and of an industry-funded regulator that is increasingly focused on enforcement. 2018 has seen a wave of regulation in the financial sector, intended to force organisations to act in the best interests of the community. No longer is it acceptable to simply comply with the legislation. There has been a step change in expectations and there needs to be a fundamental change, not only what organisations do, but how they do it. Risk and compliance functions are central to driving this change.

Our survey suggests the strain on risk and compliance functions continues to grow, with resources not rising with these increasing responsibilities and expectations. They will need to evolve to remain adequate and appropriate. As data and technology changes, so will the skillset of these teams.

In response to rising expectations, the wealth management sector has identified automation as an opportunity to do more with less. The potential for technology to assist with the remediation of the underlying themes, at the core of failing to meet community expectations, remains largely unrealised.

We believe that culture lies at the heart of winning back trust. Organisations in our survey have made steps towards creating a more trustworthy culture. However, like the wider finance industry, the wealth management sector must do more to ensure that culture is driving risk outcomes in line with risk appetite. This means providing individuals with the right incentives, then holding them to account for their behaviour.

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Key findings

For almost a decade, the entire Australian financial sector has been struggling to retain the trust of its clients, the public and regulators. This erosion of trust has been deepened in the first half of 2018, with recent events shining a harsh light on poor governance and leadership. There has to be a fundamental change in not only what organisations do, but also how they do it. This response has to go further than reacting to the regulator: it needs to satisfy community expectations, and risk and compliance functions are central to driving this change.

There is a high demand for skilled people to manage risk and compliance, but the talent pool is shallow. For this reason, organisations are at a crossroads: today’s way of working is not sustainable. The skills needed for risk management and compliance are also evolving, as part of efforts to regain trust. Professionals need data management and analytics tools and skills, as well as more traditional expertise in risk management.

Rising compliance costs, along with regulators’ and the industry’s growing interest in automation, have created an environment in which emerging RegTech providers can assist compliance processes. Despite a growing number of external providers, risk and compliance functions should consider different options when deciding how to meet and raise operating standards.

The public is sceptical that the Australian financial services industry will do the right thing by its clients, or by the community at large. Recent examples suggest that there are few repercussions for poor outcomes. As well as appropriately incentivising, organisations need to use the right tools and techniques to measure, monitor and report on culture performance indicators. Risk and compliance functions have to be bold enough to challenge and escalate issues and not allow a culture of collaboration to stifle their voice.

Contact us

Craig Cummins
Partner, Superannuation, Asset and Wealth Management Leader, PwC Australia
Tel: +61 2 8266 7937
Email

George Sagonas
Partner, PwC Australia
Tel: +61 3 8603 2160
Email

Stephanie Smith
Partner, Asset Management Assurance Leader, PwC Australia
Tel: +61 (2) 8266 3680
Email

Sarah Hofman
Partner, Risk & Regulation, PwC Australia
Tel: +61 (2) 8266 2231
Email

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