Financial Advisors

Technology as Compliance's Secret Weapon and Strategic Partner

When applied using a strategic mindset, technology can solve many challenges, but you need to have a clear understanding of what technology can best accomplish. Unfortunately, we can be easily distracted and overwhelmed by our current business environment which is being propelled by accelerating rates of change. This makes it even more important to slow down and open your thinking as to how technology can be both a secret weapon and a strategic partner.

Technology’s greatest benefits include saving time and effort, organizing and developing efficient processes behind policies and procedures, streamlining workflows, automating the creation and maintenance of new processes in response to changes, and simplifying your business management response to complex challenges. As an example, technology can transform the function of regulatory compliance into a superpower — reclaiming your calendar by keeping track of all SEC deadlines, completing all regulatory filings on time, and making sure that your compliance program is exam ready.

To better understand how technology is being applied to address critical industry business issues like regulatory compliance, we had a discussion with Institute member Bo Howell of Joot — a FinTech company that provides web-based compliance technology and services to registered investment advisers, broker-dealers, and funds. We particularly wanted to explore his perspective and the thinking behind designing tech solutions in our ever-changing regulatory compliance environment to make compliance work for advisors.

Hortz: As a technologist, can you share your perspective on how you see that technology can solve concerns and challenges in financial services?

Howell: One of the major problems that many investment advisory firms experience is a gap between complex business requirements, like regulatory compliance, and actual operations. That gap is due to a few different factors, including a lack of efficient tools, insufficient time to manage compliance, and a lack of expertise. Technology can help bridge that gap by providing the tools needed to save time and increase efficiency. Many financial advisers frequently use manual processes to conduct reviews and keep records. Excel and Word files are emailed back and forth, version control is a mess, and efficiency suffers. Too many people either spend too much time on administrative tasks, and not enough time on growing their business, or they neglect their tasks and fall behind.

Some advisers make use of current technology tools to help streamline their process, but these tools were not necessarily designed to solve the problems people are using them to solve. For example, many of today’s customer relationship management tools are being used for operations and compliance. Sure, these tools can automate simple workflows, but do you really want to use a tool designed for sales to track billing and compliance? In other words, although these tools automate parts of the process, they do not solve all the problems people have, including big ones like time lost to routine tasks.

Hortz: How do you recommend that advisers better understand what technology can do to solve problems like staying on top of ongoing changes in regulatory compliance? How can tech be their secret weapon?

Howell: Most systems are designed to focus on narrow problems. For example, commonly used systems focus on trade order management, sales, customer relations, personal trade reporting, etc. Unfortunately, many firms are struggling to manage all these separate systems and databases. Technology can make a difference only when it promotes both innovation and integration.

Technology can take the compliance burden off advisers in ways that allow them to focus on growing their business and serving their clients—the things they really care about. But before advisers can use technology to their advantage, they need to know what specific problems or processes take their time and energy away from their business. Doing an inventory of the most time-consuming tasks and the type of risks a firm faces is an essential first step. This way, criteria are established for evaluating existing tools and determining how specifically they can help ease the burden. Once they identify these areas, then advisers can focus on the tech solution.

Hortz: How did you design your technology so it was easy to use and adaptable to each client firm?

Howell: We try to take a holistic approach with our technology. Instead of saying we want to do one thing in compliance well, we focus on automating 80% of all compliance tasks. That’s our vision. Too many RegTech firms are focusing on just a few areas of compliance, usually those that are easiest to solve. At Joot, we are designing features for both easy and hard tasks. For example, most RegTech systems can collect certifications or personal trading data. We do too, but we are also designing tools to help with risk assessments, annual compliance review, advertising and marketing review, and more. We are pushing RegTech into machine learning and AI because we are not satisfied with just process automation.

For example, we recently launched our new Policies Manager. There are systems out there that create generic policies and procedures. Users can take these templates and add them to their manual. But many of these systems simply present users with a laundry list of policies and procedures that cannot be edited. We took a different approach. As compliance professionals, we can read a Form ADV Part 1 and identify many of the policies and procedures for that specific business. We used data mapping and other tech tools to create a customized set of policies and procedures specific to each advisory business. Users can download these policies or maintain and edit them directly in our system via our newest feature—JootDocsTM

Hortz: What have you seen as the top areas that regulators immediately go to in their exams and what specifically can technology do to prepare and support advisory firms in those areas?

Howell: It is critical for advisory firms to align their policies and procedures manual with their business. That is a key target area for regulators in their exams. A generic or outdated manual that is not consistent with Form ADV Parts 1 and 2 is a huge liability for any firm. At the same time, manual processes to compile firm-specific policies and procedures take a long time, and the creator must have a deep understanding of SEC rules and industry best practices. Small firms with limited resources especially struggle to create and maintain adequate policies and procedures.

Tech applications can be designed, like our Policies Manager, to read a firm’s Form ADV and create a relevant policies and procedures manual in a matter of minutes. Instead of compiling a manual from scratch, advisory firms can let technology walk them through the process and do the hard work for them of making sure their manual is comprehensive, current, and complete. Our system also calendars important tasks and automatically sets up workflows related to those tasks, all with excellent documentation. They get time back in their schedule, and they are prepared for SEC exams. Our goal is to help firms automate some of the most important but often ignored or postponed compliance tasks that take so much time away from the business.

We are also working on integrating some of the key compliance tasks into our system, such as the annual risk assessment and written review. Imagine a system that reduces the time it takes to complete a risk assessment and annual review to hours instead of days.

Hortz: What other compliance areas or functions can technology offer a key solution for?

Howell: Machine learning models and artificial intelligence are the next areas of development for compliance technology. AI can both anticipate and help meet the needs of firms and their clients. For example, AI can analyze and compare a firm’s marketing materials against the new SEC marketing rule and flag content that is out of compliance. AI can also recognize prohibited language and add needed disclosures.

More broadly, AI can facilitate regulatory compliance tasks in ways that help advisers reclaim their schedules. Advisers still need to review, correct, and support any content auto generated by technology or flagged by AI, but these tools allow them to focus on other tasks and client relationships that matter the most.

We are starting to scope and design features that leverage AI to take our applications to the next level—automating 80% of compliance tasks.

Hortz: How can tech become a strategic partner?

Howell: To meet people’s needs, technology must be developed in line with how it is used. Technology can only be a partner insofar as it solves specific, pressing problems for the people who use it. We work closely with our clients to understand what tasks they need technology to perform for them. We also help our clients take ownership of technology by showing them how to use it to ease the compliance burden.

We even work with clients to identify when they need people instead of systems. For example, sometimes firms do not need another layer of technology; rather, they need someone internally to become a superuser of existing systems who can identify where more integration is needed. We can then work with that person to develop such integration.

Hortz: What kind of services do you offer to complement your technology?

Howell: Joot offers a range of compliance services to complement our technology. For example, we can manage an individual compliance project or an entire compliance program. We can provide various levels of ongoing compliance support or oversee a firm’s technology vendors. At the most basic level, we help our clients during peak periods (e.g., quarter end, Form ADV renewal, etc.). But we can also serve as the compliance department for an in-house CCO or as the outsourced CCO. The level of service needed depends on the business structure, internal resources, and the adviser’s growth strategy. Our services and technology work hand in hand to get compliance done for firms with a range of needs.

Howell: Any other thoughts or recommendations you can share with advisory firms on how they can use technology to manage and be on top of changing compliance challenges? Any advice particularly on mindset to guide yourself in working with technology?

Howell: Technology can help advisers hand off tasks they do not have the time—or desire—to do. But adopting technology does not mean turning compliance completely over to automation. Nothing—not even the newest, shiniest app—can replace compliance expertise. I always remind people that technology is a tool, but someone must still wield it. In compliance, technology has not yet evolved to the point of being fully autonomous. It works best when it is developed to address specific needs. People are still a big part of that equation.

We work closely with our clients to understand what technology can and cannot do, and what it might do to solve future problems we are just starting to anticipate. To use another analogy, compliance can be viewed as fitness training. Technology is the equipment you need to make your body stronger and fitter. Services are your personal trainer who helps you maximize the benefit of that equipment.

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation, and unique client/community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - NASDAQ, Ultimus Fund Solutions, Pershing, Fidelity, Voya Financial, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines).

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Bill Hortz

Bill Hortz is an independent business consultant and Founder/Dean of the Institute for Innovation Development- a financial services business innovation platform and network. With over 30 years of experience in the financial services industry including expertise in sales/marketing/branding of asset management firms, as well as, creatively restructuring and developing internal/external sales and strategic account departments for 5 major financial firms, including OppenheimerFunds, Neuberger&Berman and Templeton Funds Distributors. His wide ranging experiences have led Bill to a strong belief, passion and advocation for strategic thinking, innovation creation and strategic account management as the nexus of business skills needed to address a business environment challenged by an accelerating rate of change.

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