Compliance with SEC and other regulations has long distracted many registered investment advisors (RIAs) who seek to provide exceptional service to their clients and expand their professional practices. Federal and often state regulations require advisors to devote time and attention to documenting and justifying their decisions on behalf of clients. In response, advisory firms usually use a patchwork of manual processes and disparate systems to comply with these regulations, which can be costly, time consuming, and sometimes inaccurate.
Relief for advisors wrestling with compliance problems is now on the way. Technological advancements based on institutional-grade compliance rules engines are paving the way for RIAs of all sizes to automate compliance checks and improve overall operational efficiencies. As a result, advisors who embrace compliance automation are increasingly able to spend less time and attention on regulatory matters and more time on high-value activities – notably, serving their current clients and finding new ones.
Compliance technology enables success
Inefficiencies in RIA compliance processes can limit advisory firms’ success and path for growth. Fortunately, rebalancing and trading technology advancements have emerged as valuable tools for RIAs to tackle their regulatory requirements effectively. Many firms find themselves at a disadvantage, with less than one-fifth (only 18%) of RIAs employing compliance professionals, according to a 2023 Cerulli report on RIAs. For small firms, the compliance oversight can be especially taxing and limit their ability to expand their client base and scale their businesses.
RIA firms identify three notably daunting challenges – regulatory compliance, the time required to run the business, and burdensome operational responsibilities, according to the Cerulli report. Complying with the SEC is non-negotiable, and keeping pace with new regulations and frequent amendments often strains RIA firms’ operating capabilities.
For RIAs, SEC compliance goes beyond simply following the rules. Done well, compliance can contribute to delivering strong investment outcomes for clients. Requirements to identify and mitigate risks proactively are part of the regulatory framework. Still, perhaps more importantly, they’re essential to safeguarding client assets and preventing lapses in policy or sound business practices.
Advisory firms must maintain accurate records and detailed documentation of investment decisions or communications in preparation for audits and routine regulatory filings. The cost and complexity of preparing and managing these regulatory materials are substantial and growing. Along with compensation, regulatory compliance was the only cost segment to increase significantly from 2022 to 2023 – by 1.7 percentage points, according to Cerulli.
intelliflo redblack’s compliance rules engine automates your processes
New compliance technology based on business rules engines allows users to seamlessly define and implement client-specific compliance decision making. By automating compliance checks during rebalancing and trading events, advisors can save time and avoid errors inherent in manual verification, thus ensuring they’re not stepping outside client mandates as they make investment decisions. By doing so, advisors can streamline the compliance process and reduce the risk of errors and oversights.
Speaking on one such product, intelliflo redblack, Jennifer Valdez, President, Americas for intelliflo, emphasized the significance of this update, stating, “We’re giving RIAs of all sizes the power to efficiently implement compliance like never before, reducing risk, saving time, and ultimately driving success.” The platform’s ability to easily handle complex requirements is a game-changer for advisors who have traditionally struggled with time-consuming, manual compliance checks.
The new compliance rules engine feature allows users to define and implement tailored compliance requirements for their clients directly in the intelliflo redblack platform. The process automates compliance checks during new portfolio events intelliflo redblack is already performing, like rebalancing and trading. intelliflo redblack also provides new advanced tax management capabilities and cash and wash-sale management options, along with improvements to order management systems. These enhancements, says the company, along with the new compliance rules engine functionality, position the software as a comprehensive solution for RIAs looking to optimize their operations and enhance their service offerings. Over 25% of the top 50 largest RIAs in the U.S. already use intelliflo redblack in their investment management systems, representing an impressive $700 billion in assets on the platform – serving as a comprehensive solution for managing complex portfolios of all sizes and integrating its many features into the day-to-day operations of financial advisors.
Enhanced technology such as intelliflo redblack can transform day-to-day operations for RIAs and their firms. Manually customizing compliance rules for each client is tedious and time-consuming and eats away at the time advisors could spend prospecting for new business or nurturing existing relationships. Compliance rules engines swiftly solve this problem and allow advisors to adhere to the compliance rules without having to ensure each trade within their clients’ portfolios falls within complex mandates.
Four ways rebalancing and trading technology addresses compliance challenges
Compliance rules engines are a welcome addition to rebalancing and trading software used by RIA firms. In addition to the new compliance rules engine advancement, intelliflo redblack satisfies client compliance mandates in several ways.
Through this platform, RIAs can ensure timely and objective rebalancing based on client goals and risk tolerances at both the individual account and household level. It helps mitigate compliance violations with varying levels of restrictions, proactively validates investment policies, and performs model tolerance checks to reduce manual errors and potential biases. The technology can identify potential violations such as concentration limits, restricted securities, or prohibited trades in real time. These and other innovations significantly reduce the time an advisor spends finding and fixing such errors and allow for more time on other high-value tasks.
Documentation maintenance is another non-negotiable dimension of proper compliance standards. Rebalancing and trading technology offers built-in audit trail functionality, recording every transaction, decision, adjustment and communication within the platform, thus creating a transparent trail of activity that allows for easier audits and regulatory oversight. Built-in documentation assistance also provides peace of mind to advisors, as they know that every trade and transaction is already recorded without having to worry about manual inputs.
This technology also allows RIAs to implement pre-defined compliance rules and restrictions to prevent unauthorized trades, ensure best execution practices, generate real-time confirmations, and enforce regulatory constraints. intelliflo redblack also includes automated trade reconciliation, trade memorandums, confirms/affirms and other archives, which ensure post-trade compliance and avoid trade errors. Users are able to identify post-trade discrepancies – notably, missing trades, transactions without corresponding trades, mismatched quantities, price discrepancies, etc. – if they arise.
Although time-consuming, compliance reporting is necessary for all RIA firms. Certain requirements, like ADV filings with client-specific disclosures, can be readily automated through trading and rebalancing technology that generates transaction reports, trade blotters and position summaries, ultimately saving time and ensuring timely submission. Within this technology, advisors can also create detailed and customizable client-facing reports using the most relevant data for both the advisor and the client.
RIAs can improve their compliance reporting by utilizing these new advancements in technology. New rules engine features further enhance a firm’s capabilities, streamlining the compliance process and giving RIAs valuable assurances. Rebalancing and trading technology like intelliflo redblack allows RIAs to navigate the regulatory landscape efficiently and optimally, giving compliance officers greater confidence and allowing advisors to do what matters most – spending time with their clients.
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