Smaller teams. Fewer resources. Same big compliance problems.
That’s the reality for small to mid-sized financial advisory firms asked to maintain meticulous levels of compliance on par with their massive counterparts in an environment where guidance and governance are in a perpetual state of flux.
Adding to the pressure is an underlying aversion to compliance, creating a situation in which the mere mention of it elicits the same reaction as a four-letter word ringing out in a quiet church.
“There’s this popular perception that compliance is the red light in everyone's office and that if you deal with compliance, it’s going to be the worst day of your year … and I think that what we have seen is quite the contrary,” said Will Bressman, president of
“Of course, you don't want to spend every day dealing with compliance, but having an efficient process is the goal no matter the size of the firm. And the question we get the most is, ‘How do we do it? How do we start?’”
For Bressman and many others, technology is the key to leveling the playing field. By adopting the right tools and putting the right people in place, firms of just a few people can handle compliance tasks previously handled by entire divisions.
“There’s also a perception in the compliance world that all of these activities should be just the focus of the chief compliance officer or the compliance team … but the great compliance programs figure out a way to involve everyone in the firm to make sure that employee training is not burdensome and completion of the required activities from an employee perspective is not disconnected from what the overall firm operations look like,” Bressman said. “Certainly the compliance team and others take a bigger share of the responsibility. But ensuring that you have customized programs supported by firm leadership and integrated into the firm’s operation is crucial. It’s how you build the culture and not create a disconnected, apathetic version of compliance that is ultimately not going to be that effective and drain the energy from your firm.”
Those were some of the insights shared late last week when Bressman and
Bressman and Fraulo tackled topics like the unique compliance challenges smaller organizations face; the pitfalls of an apathetic approach to compliance; scaling compliance programs to meet needs as they emerge; automating the compliance process; and creating adaptable programs that are both proactive and reactive.
The panel followed the release of
The 19-page document also provides insights and suggestions from company executives, subject matter experts, industry leaders and regulators. Highlights of this year's playbook include a review of 2021 SEC regulatory actions and penalties levied against financial services firms; SEC and FINRA 2022 Exam Priorities; and recommendations and tools for firms to fight regulatory compliance apathy.
According to the ComplySci report, the SEC enacted a number of critically important and first-of-its-kind enforcement actions in the 2021 fiscal year, awarding $564 million through its whistleblower program. Examinations rose to more than 3,000 cases and total penalties grew from $1 billion in 2020 to $1.4 billion in 2021.
ComplySci officials said this trend, combined with growing public scrutiny and ever-growing regulatory reporting requirements, continues to make compliance more complex, increasing the risk potential for organizations. As a result, approximately 70% of compliance professionals report they are considering increasing compliance process automation in 2022.
"The importance of compliance within organizations continues to grow," ComplySci CEO Amy Kadomatsu said in a statement. "It is crucial companies, regardless of their size, take the steps necessary to protect themselves, their employees and their customers from not only SEC sanctions and fines and corresponding reputational damage, but also from the potential loss of credibility and incoming investments and revenue that can result from noncompliance. ComplySci and its family of firms is committed to providing a variety of governance, risk and compliance offerings to help meet and manage this need."
Traditionally, compliance hasn’t been a major focus for advisors’ technology budgets. Just over 40% of advisors said they’ve adopted compliance software, according to Financial Planning’s 2021 Technology Survey. Only a quarter of advisors said they plan to spend on upgrading their current compliance solutions.
A separate study from Hearsay Systems, which builds digital communication technology for financial services firms, found only 25% of firms across the industry are implementing automation into compliance processes. But manual processes are stretching compliance teams thin.
For Bressman, it’s all about the marrying of technological efficiency with human expertise —he right combination to keep costs down,and ensure that compliance issues don’t overwhelm your organization.
“In the old days, there was either technology or an expert. Either you're plugged into software and you never spoke to someone again, or you spoke to someone and never had a system to do it yourself,” he said. “I think the greatest opportunity exists for firms that can really create that happy marriage between the expertise and the solutions to implement it.”
He added that as far as the question of when to get started, firms that are still asking are probably already playing catch-up.
“I hope people won't be too upset with this answer, but in some ways you need to be thinking about it from day one. But that doesn't mean you need to be over-investing or implementing an incredibly complicated system from the first moment you start your firm … but it does require some degree of foresight,” Bressman said. “You want to do preventive care, not emergency care. It's always easier to do that when you're kind of doing it as you go instead of waiting till it's too late and you have a problem.”
