Compliance ensures a firm adheres to industry rules and regulations. Following the 2008 financial crisis, the importance of compliance within the financial industry was made even more apparent. Inadequate compliance practices put people’s homes, retirement funds, and overall quality of life on the line. It puts a firm's reputation—and existence—at risk too.
Strong compliance practices ensure good standing for your business, and they’re good for business too. If you have a way to embed compliance into your everyday workflow, it becomes a part of the process, instead of additional admin work. The opportunity cost of inefficient and ineffective compliance measures is time that could be spent building stronger client relationships and growing your business.
Who’s responsible for compliance?
Many firms may have a compliance or legal department that is the ultimate source of reason, but the responsibility of compliance falls on every single employee. A single compliance deficiency can have company-wide effects.
While it may not be possible for every employee to have the same amount of expertise as a compliance professional, it is possible to put guardrails in place to help steer your team in the right direction. We’re not talking about a one-time compliance training video that happens during an employee’s first week on the job, rather, you need a way to embed compliance throughout your business practices every day. It can’t be a one-time checkbox and it can’t be an afterthought.
5 Ways to Incorporate Strong Compliance Practices
1. Educate your employees
To follow compliance standards correctly, your team needs to know why it’s important and how to stay in line. Rules and regulations are always changing—like the addition of Reg BI—so advisors need continuous education on what’s new, what it means for the business, and what they can do about it.
Provide comprehensive, adequate training (aka, not a one-time video) and resources to help arm them with the information to make informed and compliant choices.
2. Have standardized a compliance processes
Help ensure your team is all on the same page. A standardized approach to the workday helps mitigate compliance risks. With today’s digital advancements, you can use technology to help embed consistent and compliant-friendly processes into an advisor or asset manager’s workflow.
Admin guardrails, including checkpoints and restrictions, like those embedded within the CapIntel platform, can foster a consistent process across your team, and help reduce the risk of compliance deficiencies.
3. Keep a track record
Strong compliant practices include maintaining a record of your actions. When it comes to wealth management, having documentation of any investment presentation or advice offered is crucial to overseeing the level of diligence done for each client. Notably, in 2022, the SEC charged 16 Wall Street firms with widespread recordkeeping failures. The firms admitted to not maintaining and recording electronic communications and agreed to pay penalties totalling more than $1.1 billion. Yes, billion.
CapIntel makes recordkeeping easy with time stamps and auto-saved copies of every investment proposal created, which makes it easy to find, download, and audit documents in the future.
4. Review and improve your compliance processes
Just as you want your team to be up to date with compliance standards, you need to ensure your processes and technology are adapting with these expectations. When the SEC began conducting examinations on how firms were complying with RegBI, they ended up releasing a Risk Alert with frequent deficiencies they found, including firms using technology that did not adapt to new rules.
Review your internal processes and any third-party vendors often to see if they follow the latest rules and regulations. If they don’t, it may be time to switch to a company that is more adaptable to changes.
5. Provide a confidential way to report any wrongdoings
Of course, there’s no foolproof way to stay compliant. In the event someone suspects negligence, you need to have a safe and confidential way for them to report the suspected wrongdoing. The process must be efficient and effective and have a thorough action plan for looking into reports. Some firms may look to third-party vendors to offer the service, and some may keep it internal, but most importantly it needs to be secure, so an individual feels safe to submit any suspicions.
Compliance is not a nice to have, it’s a need to have, and it’s not going away anytime soon. Outdated compliance practices not only put your company at risk but can be inefficient, resulting in more administrative work and less customer-facing time.
Maintaining an ethical, efficient, and compliant firm should be top of mind for all wealth management professionals, from management to new advisors. By embedding compliance guardrails with technology, like CapIntel, firms have an easy way to introduce consistent processes, reduce risk, and encourage proper compliance.
Don’t make compliance an afterthought. Embed it within your workflow to save time and gain peace of mind.
