Industry Veterans Agree on the Need for Compliance Software

Key Takeaways from InvestorCOM’s December Webinar

In light of SEC’s 2024 Exam Priorities and Enforcement Agenda, InvestorCOM brought together leaders of the regulatory and compliance industry to discuss the industry’s outlook and expectations from the SEC during the coming year. During the insightful discussion, each of the participants agreed on the need to deploy technology to meet compliance needs.

Here is what they had to say:

Tom Selman, Founder of SCOPUS Financial Group

If I go to a professional, like a doctor, and I see that everything’s paper based, I’m less impressed than if it’s all technology. They don’t seem to be with it. But aside from that, I think there are two general reasons that firms decide to adopt the technology to deal with their compliance questions.

The first is, fear of new enforcement actions or regulatory actions by regulators. In anticipation of a new regulation, when firms decide to build a compliance system, they may do their WSPs, and then realize maybe they ought to have some kind of technology to deal with it.
The other reason is a steady drip of inefficiency created by the manual paper systems. Over time, after accumulating a lot of wasted resources and wasted time with a paper based system, firms finally agree to go with technology. I think either of those are reasonable.

In InvestorCOM’s poll of the industry, almost 24% said that they haven’t adopted technology or are reluctant, either because of the time and resources to adopt the technology, or, to try to convince the advisers to adopt the technology. I think, that those answers are exactly the opposite of how people should look at it.

The time and expense of adopting technology is more than saved if it’s good technology, and the time and expense you’re not spending with a paper-based system.

A paper-based system has a lot of compliance and enforcement risks associated with it. So, there’s obviously an expense if you have to pay a fine or a settlement because you had a paper-based system that recorded something you didn’t mean to have recorded.

Therefore, looking at the time and expense of technology adoption, without considering that the wasted time is essentially ignoring the opportunity cost.

The failure by financial advisers to accept technology is also a wrong way to look at it. They don’t like to accept technology that’s bad or inefficient. If something’s going to actually speed up their processes and is simple, straightforward, easy to understand, and consistent, then financial advisors (FAs) are happy to adopt it. Most FAs don’t want to spend a lot of time on compliance, and technology can be a useful solution.

Robert McGill, President – Compliance and Compensation, Docupace:

We are all aware of how valuable technology can be in terms of enforcing consistency of process. It also is valuable in producing automatic documentation. So, if you go through the technology, there are documents that come out where appropriate – documents that come out and are automatically filed or indexed to the right investor, to the right product, to the right account. So, when going through a regulatory audit, they are there. Forget about whether it was in the best interest or not, it’s probably true that a lot of (recent) violations are documentation oriented. We don’t know what was in the best interest, because it wasn’t written down, or, there is some generic note out there that doesn’t really explain the process that the advisor went through.

You can be compliant without technology. It’s not that you have to have technology, but technology allows you to take some of the risk off the table because documentation happens automatically.

Armin Sarabi, Chief Compliance Officer & General Counsel, Alphastar Capital Management:

It’s 2024 and technology is everywhere. AI is everywhere. There’s lots of tools out there to make it easy for us. We’ve everything in order, all the ducks are in a row and now the conversation becomes a much easier one with the regulators as opposed to having to defend against that.

Investing in your compliance program is important. The day of having a single person who wears three hats between managing the firm, and being an adviser, and a compliance officer – those days are long gone. There’s a lot of regulation out there; there are a lot of requirements. It’s simply not a one-person job, let alone a third-of-a-person job. Understanding that, investing in the people and investing in the technology is really important. Reducing or eliminating the potential for human error and just creating efficiencies in the process is essential to avoid regulatory risk, and, I can’t think of a better way to do that today than to use the right technology.

When I say right technology, I’m thinking about something that not only gets our needs met, but also is adaptable by the group that’s out there. And that’s a huge thing. We always look for a technology that allows some sort of customization that allows us to adapt the program so that it’s a seamless process from some of the more antiquated ways that we’ve been working.

Here’s a great example: when the Department of Labor came out with PTE 2020, we had a manual process on paper. But then, we switched over to RolloverAnalyzer. One of the greatest things about the technology was the fact that we could actually duplicate our paper process in the RolloverAnalyzer platform; that made it super easy for our folks to make the transition. Nobody griped about it. That’s really what I look for when I try to implement new technology to create these efficiencies and eliminate the potential for human error.

Ready to revolutionize your compliance strategy? Explore RolloverAnalyzer on our website and schedule a demo with our team today. Plus, catch the full webinar, Understanding SEC’s 2024 Exam Priorities & Enforcement Agenda, for an in-depth recap of these key insights.