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4 Steps Advisors Should Take To Strengthen Compliance

StratiFi Technologies Inc

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As regulatory activity in the wealth management industry hits a fever pitch, financial advisors and their firms are increasingly finding themselves at odds with compliance departments who are under increasing pressure to keep their firms out of trouble. In some firms, compliance is viewed as the “business prevention unit” that uses a cold-hearted approach to shut down ideas and the best of intentions. Compliance sometimes characterizes financial advisors and the marketing department as undisciplined hotshots, always trying to push the envelope.

While those are the extreme perceptions, you will find that compliance officers want financial advisors to succeed at their job and advisors have great respect for compliance. However,  there is often a general lack of understanding on both sides about each other’s challenges. For financial advisors who periodically need the approval of compliance to carry out their sales, communications, and marketing efforts, they must take the initiative to close that gap.

Here are 4 steps financial advisors should take to build a good working relationship with compliance.

Meet with Your Compliance Officer

Except for delivering some compliance training, compliance staff rarely reach out to financial advisors. By taking the initiative to schedule a meeting, financial advisors can signal their interest in building a partnership with their compliance officer. The goal should be to come out of the meeting with a clear understanding of how your compliance staff views the word and what they look for when reviewing communications material. Ideally, you should come out of the meeting with a checklist of the do’s and don’ts that can make your job easier.

By having a real relationship with your compliance officer, your calls will likely be returned more promptly and your materials may make it on top of the pile for review.

Complete Your Compliance Checklist

Just like pilots review a checklist before each takeoff, advisors should review their compliance checklist each time they put words to paper. Your checklist should include the key rules and requirements as provided by compliance. 

Promissory language: List the types of promissory words and phrases that can trigger a negative response from compliance along with the proper alternatives. For example, you probably can’t get away by saying, “This fund routinely outperforms its benchmark.” However, you probably can say, “This fund has historically outperformed its benchmarks” if you have the data to back it up. Don’t say something “will” happen. Instead, say something is “likely” to happen.

Have all these words and phrases listed along with their solutions. As you receive additional responses from compliance, you can add them to your list.

Stay away from mentioning specific investments, products or performance: Generally, advisors understand this rule. If you’re compelled to mention a specific investment or product, be prepared with the required disclosures, realizing of course that they can be rather extensive and must be updated. Instead, you can use alternative phrases to convey an idea, such as “a leading smartphone manufacturer” or “a global search company.”

Documentation: Your checklist should also include examples of the types of facts that require documentation. Sometimes the information can be included in a footnote or as part of source documentation you keep on hand in the event you are audited. You should have a system for easily retrieving documentation as it is needed.

Disclosures: Make a notation in your checklist of where you keep boilerplate disclosures that you use regularly. For specific product or performance-related information, include the source you need to contact to obtain period-specific information for your disclosure.

Style guidelines: Your checklist should include the location of templates for firm-approved style guidelines

Commiserate with colleagues: Share your checklist with your colleagues and ask for their input. They may have additional rules or more recent interpretations of rules to help you keep your list current.

Ask for Compliance Training

Some firms provide compliance training as a matter of course. However, it is a good practice to keep up with the rules and requirements and what’s trending in compliance. If your firm doesn’t make compliance training available to you, ask your compliance officer if you can gather a group of advisors and relevant employees for a training session.

It’s a Matter of Respect

By building a relationship with compliance and adhering to the process they prefer to follow, you are demonstrating your respect for their job. It’s also about being respectful of their time. Compliance is often reviewing dozens of materials at any one time. Expecting them to drop everything to review your item demonstrates a lack of respect. However, your respect for compliance will likely be returned in the form of more cooperation when you need a rush review or want to negotiate on some changes they made.  

There’s no reason to fear compliance. Their success depends on your success so it’s really just a matter of finding a way to work together as a team. When you make compliance feel they are a partner in your success, they will take more interest in it. 

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Akhil Lodha Author
Co-founder & CEO StratiFi Technologies

Building the industry standard for understanding portfolio risk through cutting-edge technology at StratiFi.

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