In a highly regulated industry, advisors may find that financial planning software and other technology applications can help keep them on the right side of Securities and Exchange Commission examiners and enforcement officials.
Moreover, in light of the Department of Labor's fiduciary rule, many advisors have been converting their practice to full-fledged planning models, according to Lisa Graham, director of product management at eMoney in Radnor, Pennsylvania.
“Firms that aren't planning or considering becoming a planning organization now doing so,” she says.
In large part, that is because a holistic financial planning shop and the software that supports that model can help advisors justify the recommendations that they make to their clients, about whom they have compiled detailed profiles outlining goals, time horizons and tolerance for risk.
Planning software “demonstrates that the advisor is really taking into consideration the client's full financial picture, not just the rollover that they're asking about,” Graham says.
“Planning as a whole is a great way to demonstrate a fiduciary responsibility,” she says. “Just the fact of planning for a client helps with compliance and any regulatory ask.”
That follows the increasing emphasis that regulators at the Financial Industry Regulatory Authority Inc. and SEC are placing on the suitability of investment recommendations, zeroing in on issues such as mutual fund share classes and variable annuities.
So, when the SEC comes to inspect a firm, a planning program with a detailed client profile and extensive documentation can help assuage examiners' concerns about why an advisor made a certain recommendation.
“What they’re looking for is rigor,” says Josh Pace, president and chief executive of Trust Company of America in Centennial, Colorado.
“I think the financial planning applications become really critical to knowing more about the end clients to suit their needs. From a compliance standpoint, it means you’re doing a more thorough evaluation of that client,” Pace says.
“So if you’ve got that home-grown Excel spreadsheet, that’s not going to get you as many points as a recognized planning tool,” he says.
But beyond providing cover for investment recommendations, automating compliance functions such as documentation can introduce a degree of consistency throughout the firm that regulators expect to see.
Compliance technology “helps the firms justify and demonstrate that they have some oversight on client-level communications,” Graham says.
From a practical perspective, compliance technology can be a helpful asset in preparing for an SEC exam, Pace says.
Ahead of an examination team’s site visit, the SEC will send an advisor a detailed documentation request.
With compliance tools that Pace’s company and others offer, a firm can have those reports ready to go, “basically in the can,” he says.
Then, too, automating more compliance processes has the fundamental benefit of removing human error and, ideally, eliminating bad data from the firm’s systems and reports.
“In the olden days, with file cabinets upon file cabinets, you were only as good as the person who's doing the filing,” Pace says. “And applications remove all that risk.”
This story is part of a 30-30 series on how technology is changing your practice.
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