More recently, Client Focus Reform (CFR) in Canada and Regulatory Best Interest (Reg BI) in the United States require advisors to complete pre-trade product knowledge (KYP) analyzes and provide new disclosures to investors. I am. (As of this writing, the U.S. Department of Labor is finalizing fiduciary rules for a U.S. investor governing the rollover of his 401(k) assets into an IRA. This is another pre-transaction ).
While most companies comply with regulatory deadlines, inspections and enforcement create an additional impetus for compliance. This year is shaping up to be a year in which crackdowns will be strengthened. The Investment Regulatory Agency of Canada has confirmed that it will investigate Know Your Customer, KYP and suitability compliance related to the CFR, with many companies shown to be failing to meet their obligations. In the United States, the Securities and Exchange Commission (SEC) has quadrupled its enforcement actions in the past six months. Officials from the SEC and the Financial Industry Regulatory Authority, a U.S. self-regulatory agency, predict an increase in the number and scope of Reg BI cases in 2024 and 2025. As regulatory pressures increase, leveraging compliance technology has become a top priority. Select a Chief Compliance Officer in 2024.
Advisor productivity is another important driver of technology adoption. In a recent study by Nitrogen Wealth Inc., 40% of advisors believe increased regulation and compliance will be the biggest growth challenge over the next five years. Notably, “only 17% of advisors use compliance technology every day, revealing a surprising gap in the integration of technology solutions designed to streamline and enhance regulatory practices.” says the report.
A recent study of advisors using InvestorCOM Inc.’s technology showed they saved 2.4 hours per trade compared to manual KYP analysis. Considering that an advisor completes an average of 250 transactions per year, this savings represents 25% of the advisor’s time. Productivity savings of this magnitude can significantly improve the return on investment in compliance technology.
Technology conversations across industries are focused on the application of AI. 99% of Fortune 500 companies are already using AI tools. The opportunities for AI in data-intensive industries are enormous. 60% of advisors use or are interested in applications of generative pre-trained transformer (GPT) models. Opportunities for efficiency in labor-intensive operational and compliance functions are transforming, and many asset managers are experimenting with or implementing this technology.
Increasing regulatory pressures, the urgency to improve advisor productivity, and the emergence of the most significant technology opportunity in decades are combining to create a new level of technology adoption. One expert argues that the year of compliance technology will always be ‘next year’ as the adoption rate of compliance technology will continue to increase year after year. Regardless of where we are on the adoption curve, we are clearly crossing the chasm.
David Reeve is CEO of InvestorCOM Inc., a compliance technology provider to the asset management industry.
