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            Mid-November 2020 BYB Compliance — friend or foe?
   While your compliance department may seem as if it’s working against you, compliance is essential to protecting your clients and your business
l BY GEORGE HARTMAN unflattering news story.
Clients need to be confident that their best interests are paramount and the recommendations they receive are aligned with personal objectives. A disciplined compliance regime provides that surety for everyone involved.
Data protection and privacy
One of the fastest-growing areas of con- cern among clients, advisors, firms and regulators is the pro- tection of client data. Our accelerated reli- ance on technology to capture, store and manage client infor- mation has increased the risk that someone with nefarious inten- tions can access client
Clients, too, have contributed to the
possibility of a cybersecurity breach with increased demands for access to their accounts and the ability to perform self- serve functions, such as moving funds from one account to another. These capabilities provide another door through which intruders potentially can enter.
The challenge, of course, is that your clients take data protection as a given — until there’s a breach. That leaves you and your dealer firm with the responsibility to not only safeguard client information from the bad guys, but also protect your clients from themselves.
Few things remain static throughout a client’s relationship with you. Inevitable changes in your clients’ personal circum- stances and objectives call for amend- ments to financial strategies. New tax rules, government mandates, varying eco- nomic conditions and market volatility all require you to communicate with your cli- ents openly and meaningfully.
 My firm just introduced a more complicated account-opening pro- cess that increases the paperwork from three
pages to six. I respect the need for gath- ering know-your-client (KYC) informa- tion to ensure that my investment recommendations are suitable, but I have been a financial advisor for 20 years without a client complaint.
I am beginning to feel the compliance department is now in charge of our busi- ness and getting in the way of me and my clients. Am I being too cynical?
I hear you. Several years ago, the CEO of a national dealer firm and I were working on a business- development project.
Every once in a while, he would say some- thing like “marketing isn’t going to like this” or “I’ll have to bribe our systems people to make this a priority.”
I know he respected the work these people did, but he was obviously frus- trated and felt the “bureaucrats” were running the company instead of him. I am sure compliance fell into the same category of consternation for him.
While dealer firms and regulators may seem to be constantly adding lay- ers of complexity to your business, we all know mistakes occur — even among the most well-intentioned financial advisors and firms. Consequently, I believe most advisors recognize the value of compli- ance oversight in protecting their clients, themselves and their organizations.
A successful relationship between an advisor and a client is built on a foun- dation of trust that must be established from the beginning and reinforced at every touchpoint. A strong compliance culture aids in creating that trust. Let’s consider how advisors and clients inter- act to see why compliance is valuable to your business.
Many advisors see their firms’ market- ing departments as police rather than promoters. That’s because the marketing department’s primary responsibility can appear to be ensuring that your marketing
message complies with securities regula- tors’ rules, industry standards and cor- porate policies — rather than helping you market your business.
Marketing oversight was fairly straight- forward when most promotion was done through traditional print advertising, fax or email campaigns, and seminars. However, in today’s world, where digital marketing is the primary tool for getting your message out, staying on top of all marketing com- munications is more
Think of how wide-
spread your messaging
can become using just
Facebook, Twitter and
LinkedIn. Add your
desire to share your
latest personal insights
in real time or to share
someone else’s content
that hasn’t been approved by your firm, and you can understand why many deal- ers have put up obstacles to free-wheeling communication.
Consumers need to trust marketing messages from the financial services com- munity. They need to know there are no exaggerated claims or misrepresentations. If you want your marketing to attract the right type of clients, it must be believable.
Onboarding clients
Assuming your marketing leads to a new client, the process of bringing that client on board requires their personal informa- tion to be accurate and complete.
Gone are the days when clients’ answers to a half-dozen KYC questions would validate your portfolio recommenda- tions. Financial advisors are increasingly being asked by clients, regulators and the media to prove they have applied their knowledge, experience and professional judgment in making suitable product recommendations.
through communication that is timely, informative and transparent.
In response to your question: no, I do not think you are being too cynical. I view your reaction as a natural response to doing business in an environment that is constantly evolving.
To be sure, there are and always will be occasions when the pendulum swings too far in favour of limiting your freedom to operate your business in a manner that you feel is best for you and your clients.
My recommendation is to “go with the flow.” That does not mean you shouldn’t protest when you feel bad decisions have been made; that’s how change is encour- aged. Nor do I mean that you should let things you cannot control prevent you from doing what you do best: building your business and serving your clients.
Having a compliant practice makes life better for everyone by creating the highest level of trust among all players.
Here’s a prediction that always results in pushback when I raise it in presenta- tions: I believe the day will come when you won’t have to worry about compli- ance because the technology you use to manage your business — from initial contact to psychometric risk profil- ing, AI-based planning, algorithmically designed portfolios and automated port- folio management — will be integrated to ensure the interests of all parties are accounted for, protected and advanced.
With compliance out of the way, the path will then be open for you to work at the highest level of your capabilities by caring for your clients. IE
George Hartman is CEO of Market Logics Inc. in Toronto. Send questions and com- ments regarding this column to george@ George’s practice- management videos can be viewed on investmentexecutive.comD.ECEMBER 2009
 Financial services enterprises, insti- tutions and product manufacturers also are being held more accountable — and potentially liable — by regulators for the suitability of their recommenda- tions, either directly or through advice channels. I know you would not want
Based on my experience as an expert witness in a case between an advisor and a disgruntled client, I can add that not having an audit trail of your communi- cation can cost you plenty — even if your intentions and actions were sound. There
Having a compliant practice makes life better for everyone
any advisor or firm you’re associated is no better opportunity for you to cement
with to end up on the wrong side of an the trust your clients place in you than
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on any aspect
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