How to Calculate the Cost of Compliance

Published by Emily Traxler, Director - Manager, Marketing
September 5th, 2017

Applying the fiduciary standard in accordance with the latest Department of Labor (DOL) regulations can be a steep expense for financial firms. Wealth management organizations are making significant investments to restructure their businesses and implement technology solutions to ensure their compliance. These transitions include up-front costs and hidden expenses that can come as a surprise as firms move swiftly to align with the fiduciary rule.

To weather the changes and shoulder the costs, preparation is key. Wealth management firms that look ahead and set appropriate expectations improve their ability to leverage resources and tools in ways that allow them to recover their compliance-related investments.

 

 

 

 

 

The Direct Costs of DOL Compliance

Even prior to the DOL rule going into effect this June, wealth management firms were preparing for significant shifts in their standards and procedures to accommodate the law. These changes and the additional administrative work they entail increase the cost of doing business.

Documentation and transparency mandates also necessitate significant technology investments. New systems, training, and process adjustments are crucial investments firms must make to align with four key areas of the new law:

  • BICE agreements that are required to exempt particular accounts from parts of the new law are costly to carry out. They require the integration of an e-signature platform to the firm’s wealth management system, and each contract has storage costs and operational overhead associated with it.
  • To comply with the DOL, BICE contracts must be made available to clients online. This requirement means firms need a client portal that offers investors easy access to legal documentation and a way to communicate with advisors about them.
  • Firms must also be able to prove that their advisors are meeting fiduciary standards by documenting all advice and advisor-investor interactions. Transparency can only be achieved through an oversight tool that tracks document sharing and communications to streamline the audit process.
  • All of a firm’s financial account activity must also be monitored for compliance. Technology to flag trading or other activity stipulated by the DOL rule is a must for ensuring all accounts meet the DOL rule requirements.

Veiled Compliance Costs Add Up

There are behind-the-scenes compliance costs as well, and though they may seem inconsequential, they can add up to carry big impact. Many firms are significantly altering the ways they do business, changing the types of services they provide and creating new fee schedules to keep their offerings aligned with the DOL regulation. Major modifications can necessitate the help of expensive legal advisors. Firms must also assume the expense of communicating their changes in services and fees. They must update their marketing materials and web sites to keep investors informed.  

Perhaps the most unforeseen and impactful costs are associated with non-compliance, however. Failure to abide by the DOL regulation can mean steep fines for wealth management firms. A damaged reputation is also a hefty price to pay when firms are unable to satisfy an audit. Lost business due to violations of the DOL rule can cost firms much more than investing in compliance.

 

 

 

 

 

 

 

 

 

A Shiny Silver Lining

Compliance costs become much more manageable when firms select the right tools to support them. Technology that is purposely built to simplify DOL compliance can reduce the overall expense of aligning to updated regulations in four key ways:

  • Great technology reduces the total cost of ownership because it works with seamless efficiency. An integrated system does not require additional technology or operational resources to work. It can even prevent firms from having to staff up to handle some of the administrative support they would otherwise delegate to employees.
  • Solutions designed for DOL compliance also reduce the need for firms to hire a full compliance staff. Specialized technology has account monitoring and oversight tools built in to save firms the cost of hiring a team of compliance experts to tend to regulatory issues.
  • A platform that ensures fiduciary compliance ultimately saves organizations significant fines and penalties. It drastically simplifies the audit process and protects the firm’s brand and reputation.
  • Perhaps the greatest advantage of investing in an integrated wealth management platform is that it boosts efficiency, freeing advisors to better serve investors. By providing a higher level of service to clients, firms can justify an increase in fees.

 

Technology Turns Compliance into Growth Opportunity

To give advisors full control over the management of their clients’ accounts in compliance with the fiduciary standard set forth in recent updates to DOL regulations, First Rate offers ARKON. This fully integrated wealth management solution blends a powerful CRM platform with advanced reporting, fee and account monitoring, and document management. It features e-signature capabilities for completing BICE agreements, and includes a client portal where investors can access up-to-date account information and review critical documentation. ARKON helps advisors ensure all DOL compliance requirements are met with each account, and it puts proof right at their fingertips to help ease firms through audits successfully, avoiding fines and negative legal repercussions.

Employing ARKON makes advisors and brokers more efficient, enabling them to focus on serving their clients’ needs and cultivating meaningful relationships. With more time, energy, and attention to commit to providing a higher standard of service to investors, firms can use their investment in ARKON to enhance profitability while ensuring their practices are aligned with the fiduciary standard.   

 

 

 

About the Author: Emily Traxler, Marketing Delivery Manager, has been with First Rate since 2010. In her role she manages the Marketing team to expand awareness of the First Rate brand, fill a robust sales pipeline and maintain a positive image of First Rate and its products and services. Outside of First Rate Emily is an advocate for Jessica Glenn’s Special Spaces DFW changing lives one bedroom at a time. Connect with Emily via Twitter or LinkedIn.

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