How Wealth Management Companies Can Address Compliance Concerns

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Running a wealth management company requires more than financial advisory expertise and good communication skills. While these are the basic essentials to win the trust of your clients, you cannot build a business over them.

A robust backend process is equally crucial, and it includes the element of compliance. You can expect to feel overwhelmed by the compliance rules because they are more complicated than you imagine.

Moreover, these rules apply to several aspects of running your business, such as marketing, asset custody, documentation, and cybersecurity.

There is always a chance of missing out on something, even if you are the most diligent professional. The worst part is that skipping compliance can land your business in deep trouble.

You may face penalties from the regulating authorities, but they are only the tip of the iceberg. Non-compliance may hurt customer trust and business credibility, which are the last things you want to lose.

But careful planning and navigating can help you stay on track with industry regulations. Let us share some tips for wealth management companies to address compliance concerns effectively.

Lay the groundwork diligently

Laying the groundwork diligently is the key to staying on the right side of regulations. Start early during the registration process and get information about the compliance requirements for the industry.

You can check them online or seek guidance from industry experts. Also, ensure updated information because laws and regulations in the industry are ever-evolving.

Covering the areas from the start keeps you stress-free and prevents unexpected penalties, which can be painful for a startup. Moreover, not handling things well from the start can affect your reputation as an advisor.

Communicate with regulators to be extra sure

Communicating with regulators is a good way to be extra sure about the initial due diligence. No one understands the compliance requirements better than the people who implement them in the first place, so do not hesitate to connect with them directly.

Besides guiding you on regulations, they can advise you on the fine lines of certain business activities and fee structures. Building rapport with your regulators is vital as it keeps you on the same page.

Keep the line of communication open and get in touch when you plan to do something but are unsure about its legitimacy. Reaching out with concerns and getting clarity on them puts you in a better place to avoid problems later.

Moreover, it strengthens your relationship with the regulators over time, and they have an unspoken trust in your company.

Get your basics ready

Starting a wealth advisory company is just like launching any startup. However, you can expect it to be more complicated because of the fiduciary element. After all, clients’ trust and money are involved, so you need to go the extra mile to preserve them.

Privacy Policy, Code of Ethics, Compliance Manual, and Business Continuity Plan are the basics you require for compliance. You may not need to provide these documents while registering your wealth management company.

But you will require them after registration. Experts recommend working on them sooner than later so that you have them ready before setting up your website. Also, ensure that an expert works on them to avoid errors and omissions.

Watch your wording

Watching your words is crucial because everything you mention in your documents gets close attention from regulators and clients. Regulators expect financial advisors to explain their fee structure in detail, and clients will also want the same.

You must also track where and how the client’s money will flow once it enters your firm and moves to designated bank accounts. You will also have to report some facts about your business. It is vital to provide succinct descriptions to build credibility for your company.

Look for experts to help you with the appropriate ADV language. Form ADV is the form investment advisers have to fill to register with the Securities and Exchange Commission (SEC) and state securities authorities.

Collaborate with compliance specialists

You may be great at wealth management yet lack an understanding of industry-specific regulations. After all, regulatory language is complex, and it is hard to read between the lines when you are a novice.

You should not leave things to chance by trying to figure them out on your own. Collaborating with experts for guidance on wealth management compliance is the best way to avoid guesswork and ensure proper adherence.

You can trust these specialists to provide you with valuable oversight to help mitigate non-compliance risks to your practice in the long run. With experts showing the way, you can stop worrying about penalties and focus on client satisfaction with the best services.

Check the minimum net worth requirement

Some states require financial advisors to meet a minimum net worth requirement. Check the clause for your state and have a plan in place to handle the requirement effectively. Ensure that your company never falls short of the limit.

Your assets may not allow much of a buffer initially, but many states let firms get surety bonds to stay ahead of the minimum.

Also, keep a close eye on your bank account regularly if you plan to use it for the firm’s expenses. You may face dire consequences if the account limits fall short of the minimum for compliance requirements.

Win with professional development

Professional development takes you a long way in any industry, and wealth management is no exception. Of course, you must upskill to enhance your core expertise as it enables you to enhance the level of your services to your clients.

But think beyond extending your wealth management skills because you need to learn a lot more to run your business successfully. You can benefit from compliance training even if you have specialists guiding you.

Also, invest in continuous education and research to stay updated with the ongoing changes in the regulatory landscape. A good understanding of compliance gives you brownie points because you can run your company seamlessly over the years.

Audit your privacy and cookies consent

Since wealth management companies have websites like other businesses, they need to ensure digital privacy for visitors. You must also get written evidence of user consent to use their information.

Having digital policies and workflow is a good start, as it establishes trust for your website. But taking a set-and-forget approach to them is the last thing you should do.

Review your privacy and cookies consent to ensure your digital marketing is compliant with enforcement and regulatory trends. Check the “I accept” buttons on the site so that users can see and click them before sharing personal information.

Additionally, have a clear and effective unsubscribe process in place.

Review the use of data

Tracking privacy and content is a good start for ensuring digital compliance, but it is not enough. You must go the extra mile by continuously reviewing the use of data. Personally-identifiable data is no longer the relevant standard.

New requirements cover every piece of information that can possibly be linked and used to discern user identity. Implement a system to protect confidential user data, even if it does not directly disclose the name of a client or prospect.

Also, make a data map to protect your business in the wake of a breach.

Use caution for testimonials

While client testimonials and endorsements can enhance your reputation as a provider, you cannot use them randomly. After all, they are promotional content elements, so you must adhere to advertising guidelines while using them for your business.

You must follow the rules regarding disclosure, oversight, and disqualification. Testimonials and endorsements should be accompanied by clear disclosures and oversight when compensation is a part of the picture.

Compensation includes cash and non-cash payments and benefits such as direct brokerage and discounts to advisory fees. Also, avoid using materially misleading information because it can land you in compliance trouble.

The rule regarding testimonials may change, so keep an eye on them and adapt accordingly.

Organize your books and records

Organizing your books and records helps you run your business more efficiently. Surprisingly, the benefits extend beyond wealth management companies.

It also secures you on the compliance front as you have valid evidence if regulators question you for some reason. The less time you spend pulling files, the better your chances of averting trouble. Besides maintaining account books, preserve records of client communication, social posts, and newsletters.

Keeping them in digital format is better because the paper load can be messy. Also, remember to have backups of files and documents so that you can recover them in case of a loss.

Compliance sounds daunting for wealth management companies. You may find it a lot of work when you already deal with the complicated job of handling clients’ money and investments.

But compliance can be easier than you imagine, provided you understand it well and stay updated with the latest rules and guidelines. Following these simple tips can keep you ahead of regulations and safe from penalties.

Covering these fronts keeps you stress-free and enables you to focus on business growth and client satisfaction.

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