You can boil any business’s primary objective down to one simple phrase: maximize profits, minimize costs.
In financial services, that sometimes means front-office teams receive resources and attention, while middle- and back-office functions are treated as cost centers — something to be controlled and contained.
And while it’s true that compliance is not a client-facing endeavor, it is far from a cost center. In fact, when viewed through the right lens, compliance becomes an essential component of your profit-generating activities.
Ready to rethink your compliance program and turn it into a profit center for your firm? Here’s how to do it.
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A Penny Saved Is a Penny Earned
Sometimes the best way to maximize profits is to minimize potential monetary losses. An analysis of the SEC’s enforcement actions in 2022 found that the average SEC penalty for a standalone case was $9.1 million, up from an average of $2.1 million in 2019.
No matter how strong a year your front office has, if you’re hit with a seven-figure fine, you quickly begin to erode your profits. If your firm is not running a proactive, comprehensive compliance program — with a robust audit trail detailing all of your efforts — you are leaving yourself vulnerable to potential regulatory scrutiny and fines.
And lest you think that 2022 was an anomaly, that same report notes that the SEC received a $210 million increase to its 2023 budget. With greater resources comes the opportunity to strengthen its enforcement division — which will likely translate to more actions and fines in the coming years.
Protect Your Firm’s Reputation
Few things can be as costly to a firm as reputational damage.
Trust is an essential component of winning new business in any industry. And when you work in financial services — where clients are entrusting you with their life savings — the threshold for earning that trust is high.
Just as reputational damage from regulatory action can harm your firm, a sterling compliance record can help burnish your reputation with current and prospective clients.
What is a prospective client’s first step when researching a financial advisor? Likely, they search for your firm and the individual advisor online. What they find can be the beginning or the end of your relationship with that prospect. When your firm or employee lists disclosures on BrokerCheck or IAPD, that is an immediate red flag.
If, on the other hand, your firm and team members show many years of experience with proper exams and licenses and current registrations, that is instant confirmation that your entire firm is acting with integrity. That earned trust can quickly become productive conversations that turn prospects into clients.
Attract Growth-Focused Talent
Potential clients are not the only ones considering your firm’s reputation. Prospective employees are looking into your firm’s standing as well.
The best and brightest in any industry want to align themselves with the best employers. Top-tier advisors seek out firms where their potential can be realized. They want to contribute to a culture of excellence where they can drive growth for themselves and the firm as a whole.
When a firm demonstrates a lack of investment in essential functions, like compliance, top talent may ask themselves what else this says about the firm’s health and inner workings. A weak or nonexistent culture of compliance may scare off these top performers.
If you want to attract growth-focused talent to your firm — those individuals with the greatest potential to drive profits — then you’ll want to invest in your compliance program.
Rely on RegTech To Improve Efficiencies Firm-Wide
One of the contributors to compliance’s bad rap as a cost center is that building a robust compliance program takes time and effort.
And while that’s especially true of old-school compliance programs — reliant on manual processes, scattershot email paper trails, and spreadsheet-heavy databases — modern, tech-enabled compliance programs can actually introduce efficiencies (and the cost savings that come with them).
An end-to-end compliance software solution allows you to integrate compliance into all aspects of your business seamlessly.
Automated monitoring can save your compliance team untold hours by reducing manual work. While tasks like reviewing employee trades or monitoring clients’ holdings for potentially less expensive mutual fund share classes used to require retroactive scanning of reams of data, regtech platforms can automate the process and immediately alert your compliance team to items requiring attention. With the time saved on manual monitoring, your compliance officers can focus on other value-add work.
The benefits of a regtech solution extend to your client-facing team. You can streamline advisors’ workflows around cumbersome compliance activities, like receiving approval on client communications that fall under the SEC new marketing rule.
Your compliance team defines the workflow for all internal compliance controls and assigns tasks to relevant team members. This reduces confusion, back-and-forth, and ensures all essential tasks are completed on time.
Finally, a compliance calendar can set important reminders for advisors, like due dates for certifications and registration renewals, so advisors don’t miss deadlines. And if someone does, the compliance time receives an alert so they can quickly remedy the situation.
When you begin to rethink the role compliance plays in your firm as a whole, you can see its critical role in driving profits. Investing in your compliance program and treating it like the profit center that it is can help you unlock new levels of growth potential for your business.
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