Wealth management compliance curveballs: Dealing with regulatory mandates

The wealth management industry endures constant curveballs from dynamic forces including demographic shifts and disruptive innovation. Just as often, changes are handed down by industry regulators like FINRA and the SEC. These calls for change by regulators often shine a light on a firm’s tech strategy, causing organizations to reevaluate their entire business plan as they determine how to respond.

Over the last five years, Advisor360° has provided enterprise-class compliance support and real-time solutions to over 22,000 users to help prepare and insulate them from major regulatory changes. Our unique ability to solve for these changes—as a partner even more than a vendor—has simplified the process for enterprise wealth firms and helped insulate them from the changes that inevitably come their way, allowing firms to focus on priorities such as client service and business growth.

Oversight of manual assets

Tracking outside accounts is an important tool for driving organic growth and having fruitful conversations with clients about diversification and performance. But there’s substantial risk to consider. For instance, firms receive hefty fines for misrepresenting assets or inflating the value of a client’s portfolio due to errors in manual-entry by advisors using their reporting platform. Ensuring compliance requires updates to manual entry forms, document storage solutions, disclosures, compliance workflows, reporting, and client portals.

Here at Advisor360°, we’ve taken a proactive approach to getting ahead of regulatory changes. Our integrated solution enables advisors to provide proof of account balances with automated workflows that tie into our document vault and Reporting capability. By building flexibility into our platform, we can accommodate each firm’s interpretation of the regulations. This flexible configuration creates room for our clients to differentiate themselves based on their internal policies and risk tolerances.

DOL rule

The Department of Labor (DOL) fiduciary rule was put into place to protect investors and ensure advisors act in their best interest. Hotly debated through numerous starts and stops over a multi-year period, the rule also resulted in high costs for enterprise wealth firms trying to comply.

Advisor360°’s compliance teams are focused on responding to up-to-date changes and building solutions that provide flexibility to enterprise wealth firms. Our broad set of capabilities around advisor information, account data, and workflow tools enable us to support firms’ specific interpretation of the rule and monitor advisor and client activity to ensure wealth management compliance.

Texting rules

Clients expect to be able to text their financial advisor and vice versa, but client correspondence has long been an area of focus for industry regulators. As new modes of communication become the norm, so too have new rules from the regulators.

Advisor360°’s compliant text messaging enables advisors and clients to communicate the way they want, leveraging industry leaders like Twilio and Global Relay for the peace of mind of compliant storage and availability of those messages. With a flexible administrative tool and practice level views of all text messages, advisors have a holistic view of all text messages sent across the practice.

SEC marketing rule

The Securities and Exchange Commission updated its 60-year-old marketing rule in November of 2022, expanding some of the ways advisors can advertise. Under the new marketing rule, advisors can now use testimonials and other marketing materials.

To accommodate this change, Advisor360° updated our advertising review tool to include new options catering to the latest regulatory requirements and allowances. We also updated workflows to ensure that compliance teams have a way to identify and maintain records for these types of requests.

Composites

The new SEC marketing rule disallows advertising proprietary model performance using the returns of a single seed account. Instead, it calls for creating individual composites for each strategy. This is another example of a regulation that firms either needed to develop in house—which is both complex and risky—or ensure that their associated investment vendors are all in compliance.

To solve for this, Advisor360°’s Portfolio Accounting application offers functionality to automate composite construction both historically and going forward.

What’s next? 

With new financial tools entering the market, an evolving technology landscape, and changes to how people work, firms can expect more changes on the horizon. Here are some of the areas that will continue to receive attention from regulators in the coming years:

• Increased regulatory scrutiny: Regulators are working nonstop to protect the rights of investors and will continue to focus on wealth management activities to maintain the integrity of the financial markets. 
• Data security: The sensitivity around the type of data within wealth management places an increased importance on cybersecurity and data protection programs. Wealth management firms must ask themselves whether they have the expertise in house to protect their clients’ data.  
• Knowing your customer: The world has become increasingly complex, political, and interconnected. Ensuring that controls are in place to detect and prevent money laundering through a solid understanding of your customer profile is imperative.
• Digital transformation and AI: New technology like cloud computing, AI, and machine learning lead to new considerations in how investors work with wealth management firms. As technology evolves, so too does the oversight to support these new solutions.
• ESG: Some investors are turning to ESG to try and align their investments with their core values. To make ESG investments more useful—as well as more credible—the industry and regulators need to look at how they are monitored and how we validate the data that generates their benchmarks and scores.
• Remote work challenges: With an increase in employees working remotely, whether at home, in a coffee shop, or in a shared workspace, firms need to consider how they’re protecting their organization’s intellectual property, as well as their clients personal information.

Wealth management firms need to ask themselves whether they are equipped to stay on top of this evolving landscape and respond in a timely manner to each curveball as it is thrown their way. Internally, you need to assess what the impact will be on your business to shift resources towards this ever-changing industry, or if you’re better off partnering with a firm who will take that off your hands for you. Remember, curveballs happen, so why not change your strategy now to set you up for better success?

Jennifer Sawan leads the Sales Engineering and Sales Operations team by leveraging her wealth of experience with the Advisor360° platform.