Wealth Management Compliance Issues: Rising Costs Threatening Your Firm?

//Wealth Management Compliance Issues: Rising Costs Threatening Your Firm?

Wealth Management Compliance Issues: Rising Costs Threatening Your Firm?

When you think of wealth management compliance issues, you’re probably thinking about the challenges of compliance itself: being well-informed of new laws and regulations, making your staff aware of the risks and penalties for failure to comply, and leading the audits, reviews, and examinations, etc.

You know compliance is important and it strengthens your firm’s credibility. You recognize the process as a “cost of doing business”, but if you’re one of the RIAs that have seen an average 9% increase in compliance costs, you’re starting to feel the burden of compliance getting heavier.

The Boston Consulting Group found that revenue made from client money at big U.S. banks’ wealth management divisions fell twice as fast as costs between 2012-15 because legal and compliance costs doubled.

News like this is reason for some wealth managers to shut down their business altogether. Cutting costs is a matter of necessity for your firm’s survival, and one way to reduce expenses is by
outsourcing an investment management firm’s various functions.

Cost Savings Solutions to Wealth Management Compliance Issues

Compliance Outsourcing

It goes without saying outsourcing functions related to compliance is a solution to compliance challenges.

A report from Deloitte revealed that of the firms that outsourced their compliance functions, 57% of those experienced 10% or more in cost savings.

With outsourcing, you can work with a team that can handle some of the tasks:

  • gather compliance data and info from systems and individuals
  • assist with internal and external compliance reporting
  • test and monitor business process and systems for compliance
  • perform trend analysis and predictive modeling for compliance operations

In addition to the cost savings, compliance outsourcing provides access to greater talent, a more seamless execution of tasks, and better data analytics and reporting tools for insights and trends predictions.

Outsourced Chief Investment Officer

Another way to offset rising compliance costs aside from cutting compliance costs is by outsourcing tasks of the chief investment officer.

Low interest rates and low returns on investments are making it harder for money managers to increase their clients’ wealth, and stricter regulations around fiduciary responsibility are squeezing RIAs profit margins.

With an outsourced chief investment officer (OCIO), wealth managers can delegate responsibility for all or part of their investment portfolio to a full-time investment adviser. The OCIO can decide how to allocate the assets under management, including selection of funds or asset classes to invest in.

OCIOs have expertise in researching and finding better performing investments, and a wealth management firm handling these functions in-house often do not have the time or resources for the work that an OCIO can do much better.

And advisories are taking notice. From 2008 to 2018, the number of assets managed under OCIOs has grown 860%, reaching $1.69 trillion in total.

Northern Trust Asset Management stated that freeing up time in their practice, a generation of above-market returns and access to investment strategies as their top three reasons for outsourcing the CIO role.

Back-Office Operations Outsourcing

Like rising compliance costs, operational costs are going up. Having your back-office functions
outsourced is another way to neutralize expenses associated with compliance.

According to Schwab, wealth managers with $100 million in AUM in 2012 reported more than 25% average savings by outsourcing data management and client reporting.

Back-office outsourcing companies can handle your reconciliation, billing and performance reporting, in addition to other tasks like cost basis, security master file maintenance, and IT infrastructure
management.

But it’s not just about the cost savings; investment management companies see greater operational efficiency as a result of back-office outsourcing. For reasons similar to other forms of outsourcing compliance and the CIO, the access to expert talent that you don’t have in-house is another motivating factor in outsourcing the back-office operational functions.

Back-office operations outsourcing companies not only guarantee you a team of portfolio accounting experts, but they solves the operational turnover issues you may have faced before. Now it will no longer matter who leaves your firm; the back-office work will always get done.

Outsourcing the Solution to Wealth Managers’ Rising Compliance Costs

When the hassle of compliance and its rising costs is getting so great that you’re worried about the financial health of the organization (and the rest of executive management is thinking about shutting everything down), then something has to change.

Outsourcing your compliance functions is clearly one option in reducing costs, and if either you’re not ready to go that route or you want to cut expenditures in other areas, opportunities to outsource investment- and operations-related functions are ways to lessen the burden compliance costs on your investment firm.

Whether you’re a CCO or COO (or both), anything you can do to lower costs in one area for the
benefit of another will help the firm. Talk with your team about if and how outsourcing different functions can reduce the stress you face with rising compliance costs.

Empaxis is a leading provider in back-office operations outsourcing services for wealth managers.

Request a complimentary consultation.
By | 2018-08-03T16:32:29+00:00 August 2nd, 2018|Compliance|0 Comments