Step 1: Aggregate all your advisor data
The performance of individual advisors can significantly impact a financial advisor firm's compliance standing. Analyzing aggregate data about advisor performance can help firm leaders identify trends and areas for improvement by sifting through large datasets and identifying patterns rapidly.
One way to aggregate all of this data is to use a tech solution to monitor advisor firm compliance and share details of how advisors are (or aren't) staying compliant with key regulations such as SEC compliance, REG BI, DOL, and CFR. These tools can help you spot deviations from expected compliance standards and trends and pinpoint areas that may require updates before a compliance breach can occur.
Step 2: Identify any compliance flags
Fun fact: there's actually a rule in place for finding problems with your compliance. And it's called, simply enough, the Red Flags Rule.
The Red Flags Rule, which is part of the Fair and Accurate Credit Transaction Act (FACTA), requires financial institutions and creditors to integrate detection systems that prevent identity theft and internal compliance problems.
And although your internal compliance systems need to be top-notch, there's one place you may not be thinking about to catch red flags that signal a problem. And that's your advisor's clients. Pay close attention to client complaints. They can be early indicators of compliance problems. Analyze the nature of complaints to identify recurring issues and address them promptly.
Additionally, monitor transaction patterns for unusual or suspicious activity. This is especially important for firms handling high volumes of trading or managing assets for clients. Identifying irregularities early can prevent potential legal issues.
Step 3: Take action to ensure advisors are compliant
No one can have eyes and ears on the daily happenings of every advisor. That's why, as part of taking action, you need to regularly encourage employees to report any compliance violations safely and securely. Getting to this information faster can keep an issue from growing into something more complicated to handle.
You should also implement an all-in-one solution that can automate processes like compliance monitoring and reporting. These systems can continuously monitor regulation changes, audit your operations, and update internal procedures with, in fact, less manual work on your part.
In a financial state of mind, it may be easy to overlook one area of compliance that needs attention, and that's marketing. External marketing collateral needs just as much compliance policy as internal materials and operations. Part of your compliance action plan should be to rewrite procedural documents and policies that address client communications, digital media, and case studies.
The SEC Marketing Compliance Rule, which went into effect in early 2021, created a solitary integrated rule that reimagined the regulatory guidelines for financial advisor marketing strategies. The details spell out rules for transparency, honesty, and integrity around how advisor firms share information. Compliance and marketing teams should create a specific compliance plan tailored to all marketing content.
What hurdles might cause you compliance headaches?
During your quest for regular compliance, it's entirely possible that you'll encounter some hurdles along the way. For example, some advisors who take on extra work outside of your firm, or side hustle as it's more commonly known, could potentially risk compliance infractions depending on the demands and nature of the work.
Also, advisors who work hybrid or remote for your firm may need additional security and compliance measures when working away from the safeguards of a physical office location.