Compliance costs cut into client services

The pace of regulatory change is challenging wealth management firms.

New rules are often complex, and there’s a lack of regulatory uniformity across the country, finds a 2013 World Wealth Report 2013.

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“The financial crisis spurred regulators to take additional steps to ensure clients are well-served,” says M. George Lewis, group head of RBC Wealth Management and Insurance.

“[But] the volume of regulatory change challenges firms to keep pace and limit disruption to clients. Looking ahead, firms [need to] retain top talent, invest strategically in training and technology, and also embed a culture of compliance.”

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The study finds compliance costs are mainly driven by the need to pay for legal/regulatory consultants, as well as for technology infrastructure. In addition, firms face fines and reputational costs if they fail to meet regulatory requirements or pass audits.

What’s more, firms’ obligation to ask for an increasing amount of client data and documentation cuts into managers’ time. It also frustrates clients.

“One alternative to counter the high costs of compliance is for firms to analyze and segment portfolios, and re-align service offerings,” says Jean Lassignardie, chief sales and marketing officer of Capgemini. “Some clients may be well served by standardized services, while more face-to-face advice can be limited to clients with larger, more complex portfolios.”

Overall, firms are focusing most on allocating funds toward:

• new technologies and automation;
• better compliance training;
• clearer marketing campaigns and client communication.

Read: 2 ways to reduce compliance costs

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.