Your Best Compliance Partner Could Be Your Tech Platform

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It’s no secret that the SEC in recent months has become more aggressive on the enforcement front than at any point during the last five years.

Some of its actions are in response to behavior that, if true, is clearly nefarious. Indeed, read any publication covering the financial services industry, and unfortunately it’s not difficult to find stories about bad actors who misappropriated or embezzled funds, preyed on vulnerable investors and did everything in between.

But in other instances, it’s simply been a matter of not having the proper Know Your Customer policies and procedures in place. Increasingly, technology is becoming a key part of that equation.

Top down, real time

Because supervision has multiple layers, a chief compliance officer’s job becomes much easier when they can see everything. Therefore, the first thing to look for in a platform is one with an integrated workflow equipped with automated alerts that provides a real-time, top-down view of the firm, including its advisors, the clients and every household.

This will allow them to figure out immediately (not at the end of a month or quarter) any number of things, including whether:

  • a client or household is on the brink of breaching one of their investment mandates;
  • any advisors have traded in a manner, across their book of business, that could cause alarm, even if there is no ill-intent;
  • advisors are providing clients with the proper disclosures and adhering to record-keeping requirements.

Moreover, a top-down, integrated approach also streamlines the internal compliance review process, making it easier to answer questions like, who has been audited, who needs to be and are the right people involved?

Ultimately, a centralized platform utilized by everyone at a firm – from the CEO to the service associates – facilitates better workflows, enhances transparency and ensures more collaboration across an entire business. By contrast, when one professional works with one system and another has something completely different, everything, including compliance, becomes more unwieldy.

Analytics must be the foundation

One essential truth about investing is that markets are cyclical. Another one is that every investor has a different risk profile and set of objectives.

For instance, in the aftermath of the dot-com bubble, a portfolio comprised of 60% equities and 40% bonds likely posed a great deal of risk for most investors. Yet, during much of the 2010s, that type of allocation could have presented very little risk at all.

The best analytics take these types of variables into account, which allows advisors to provide better advice and to implement more effective compliance due diligence processes.

Nearly every platform in the industry can trigger a rebalance warning based on the allocation preferences and concentration limits of a client. But the systems that will hold up best going forward will have a broader range of analytics to ensure those factors are fully aligned with a client’s objectives.

In the long run, when advisors have tools that better appreciate that actual risk, and the client’s perception of it, is fluid, recognizing whether a portfolio has strayed from an investment mandate or simply moved beyond an arbitrary number is much simpler.

Post and pre-trade functionality

Being able to spot whether a client’s existing holdings, combined with the trajectory of the market, could cause a client to breach an investment mandate is clearly a good thing. It facilitates a conversation about what needs to happen to make the portfolio more consistent with their risk profile.

Yet as useful as that post-trade intelligence is, platforms should also be able to do the same thing pre-trade.  In other words, let’s say a client is interested in Fund A. An advisor needs to be able to know what would happen were they to add that fund to the client’s portfolio.

Would it raise their risk profile? Lower it? And, importantly, could it get them closer or further away from reaching their objectives? Knowing the answers ahead of time (and documenting them), improves the client experience and helps to keep advisors (and their firms) in the good graces of the regulators.

A partner

A lively and determined SEC has put much of the industry on edge. Having the right technology, though, can alleviate some of the nervousness advisors and firms may have. The best advisor-facing platforms not only have analytics that improve client conversations and simplify the wealth management process, but they also act as a compliance partner.


Dr. Andy Aziz is the chief strategy officer at d1g1t, a Toronto-based enterprise wealth management platform