A Financial Advisor’s Guide to Maintaining Compliance
'Know Your Client' (KYC) standards are used in the financial services industry to verify client identities and understand their risk and financial profile. This is just one of many compliance standards for financial advisors.
Bodies like the Financial Industry Regulatory Authority (FINRA), the National Association of Insurance Commissioners (NAIC), and the U.S. Securities and Exchange Commission (SEC) established that suitable sales must be related to the fact pattern recorded in client files.
Financial advisors should be aware of the increasing complexity of financial regulations and the growing importance of compliance. Risks of non-compliance include fines, reputational damage to a business, and client loss.
This article will provide practical guidance and actionable strategies for financial advisors to effectively address regulatory compliance challenges and ensure regulatory compliance. We will also explain how Asset-Map supports financial advisors in remaining compliant.
What is Financial Advisor Compliance?
Financial advisor compliance involves adhering to the laws, regulations, rules, and ethical standards that govern the financial planning industry. It is all about ensuring that financial advisors work in the best interest of their clients. The industry regulations ensure that clients feel safe and confident working with an advisor.
Why does financial advisor compliance matter? The benefits of compliance include:
Protecting investors
Maintaining market integrity
Building client trust
Avoiding fines, legal action, and reputational damage
Client communication, investment recommendations, record-keeping, and cybersecurity are subject to compliance requirements.
Common Compliance Challenges Facing Financial Advisors
The SEC holds financial advisors and Registered Investment Advisers (RIAs) to a fiduciary duty standard. The most common compliance challenges that financial advisors face include:
Keeping Up with Regulatory Changes
Staying informed on updates to regulatory changes can be a real challenge for financial advisors. You must keep track and adapt to frequent changes in regulations at the federal, state, and local levels. Some ways to help you stay updated with regulation changes include subscribing to industry newsletters, joining professional groups, and regularly consulting compliance officers.
Client Communication and Documentation
Accurate records of client interactions, including investment recommendations, risk disclosures, suitability assessments, and more, are essential for compliance. FINRA requires that advisory firms keep track of documentation, including emails, newsletters, and social media posts.
Conflicts of Interest
Identifying and managing potential conflicts of interest is also challenging in the financial planning industry. Conflicts of interest are often related to compensation, outside business activities, and personal investments. Advisors may feel pressure to recommend certain financial products that benefit their employer, even if they don’t align with a client’s goals. Engaging with family members and close friends can also pose potential compliance issues.
Cybersecurity and Data Privacy
There is an increasing emphasis on protecting client data from cyber threats and complying with data privacy regulations. Data privacy laws such as the General Data Protection Regulation (GDPR) and the California Consumer Privacy Act (CCPA) require compliance to avoid substantial fines and penalties.
Asset-Map Global is GDPR-compliant to ensure client data remains fully protected. Created by successful financial professionals, Asset-Map facilitates comprehensive fact-finding to meet ‘Know Your Client’ (KYC) regulatory initiatives and uncover details important to the client for making informed financial decisions.
Strategies for Overcoming Compliance Challenges
It is no surprise that compliance challenges are common among financial planners. These top strategies can help you overcome compliance challenges in financial planning.
Developing a Robust Compliance Program
The first line of defense is creating and implementing a comprehensive compliance program. A robust financial advisor compliance program should include written policies and procedures, regular training, and ongoing monitoring efforts.
The following steps can help you get started creating your compliance program:
Identify relevant regulations
Develop policies and procedures
Client due diligence
Anti-money laundering
Conflicts of interest
Client asset safeguarding
Data privacy
Regularly review
Conduct internal audits
Leveraging Technology
Technology can help automate many compliance tasks and flag potential issues or unethical business practices in real time. It can also improve record-keeping accuracy and enhance cybersecurity. Since client financial data is now processed and stored digitally, financial advisors must take proactive measures to ensure data privacy and compliance.
Seeking Expert Guidance
Work with compliance consultants or legal professionals for expert advice on implementing robust data security and privacy measures. These experts can provide insightful knowledge on effectively protecting your practice from non-compliance. Legal professionals are well-versed in the intricacies of compliance regulations and can help ensure you protect your practice.
Regular Training and Education
We cannot stress enough the importance of ongoing training and education for advisors and staff on compliance regulations and best practices. Regulations and best practices change over time, and advisors must stay aware of these changes. Ongoing training and education ensure compliance stays at the forefront of people's minds.
Asset-Map’s Chief Information Security Officer (CISO) performs routine attacks on Asset-Map’s systems and employees attempting to find vulnerabilities. All Asset-Map employees must complete random testing throughout the year, review recent case studies, and run fire drills.
Ensuring Ongoing Compliance
Establishing a compliance program for your advisory practice is not a set-it-and-forget-it task. It is essential to monitor your practice for ongoing compliance.
Regular Audits and Reviews
Financial advisors should conduct regular internal audits and reviews to identify compliance gaps. Running international audits enables you to find issues and address them promptly. An internal audit analyzes workflow, systems, processes, and documentation to flag any gaps in compliance.
Monitoring Regulatory Updates
Another important part of ensuring ongoing compliance is monitoring regulatory updates. There are different strategies for staying informed, including:
Follow industry news sources. Stay up-to-date with regulations by following financial blogs, newsletters, podcasts, and other news sources. This ensures you get the latest industry news that may impact your practice.
Attend industry events. Industry events like seminars or webinars are excellent places to learn about new regulatory changes.
Network with other professionals. Build a network of other professionals in the financial planning industry to discuss regulation changes and update compliance policies.
Documenting Everything
Financial advisors must maintain thorough and accurate records of all compliance-related activities. Documenting your adherence to all regulations serves as evidence of compliance. It also helps mitigate risks and identify any gaps in compliance. Advisors should keep track of the information shared during the client discovery phase to risk assessments, to annual financial plan reviews for clients.
Asset-Map makes this easy with an unlimited report history that saves every document created from the tool. This function supports an audit trail, should it be needed. Also, Asset-Map Milestones can be an effective tool to rebuild a timestamped history of what an advisor has worked on for a household.
Stay Ahead of Compliance with Asset-Map
The importance of proactive compliance management for financial advisors is paramount to the success of a practice. Creating a strong compliance program protects client data and interests while mitigating risks and building trust. Remain compliant with regulatory requirements to avoid penalties and fines and support your clients’ best interests.
Asset-Map can help registered financial firms and chief compliance officers reach compliance program goals by providing documentation for client data. Its advanced visualization and mapping tools enable deeper client conversations and the creation of effective financial plans. Check out its features and schedule a free demo today.