Staying Ahead of Compliance and Regulatory Trends for HNW and UHNW Wealth Managers

Michael Madden, Contributing Editor, Wealth Solutions Report

How Independent Firms Focused on HNW and UHNW Clients Can Avoid Regulatory or Compliance Issues While Growing on a Scalable Basis

The incredibly competitive battle for high net worth (HNW) and ultra-high net worth client relationships between large institutions (think global banks and Wall Street wirehouses) versus independent firms (think RIAs launched by wirehouse breakaways as well as new and long-established and family offices) continues to intensify.

Across each channel of wealth management, firms are eager to acquire or recruit financial advisor businesses that are skilled in serving these client demographics, while arming existing client-facing professionals with more resources to target the moneyed classes.

Recruiting skilled financial advisors is imperative but can be really challenging.

Frequently lost in the noise of M&A, recruiting and client prospecting, however, is the fact that wealth management as an industry continues to be heavily regulated.

Independent RIA firms and family offices focused on expanding in the HNW and UHNW segments need much more than cookie cutter compliance solutions to operate effectively while going toe-to-toe against their large financial institution competitors.

Compliance on a Scalable Basis

And that’s where third-party compliance professional services firms are increasingly playing an outsized role in helping independent firms grow on a scalable basis.

After all, for most newly independent wirehouse breakaway advisors and small to mid-sized family offices, having a full-time compliance department simply isn’t going to work in terms of cost and resources.

Take Compliance Risk Concepts (CRC), for instance.  Headquartered in New York City with satellite offices in Chicago and throughout the West Coast, the firm was founded in 2013 by Managing Partner Mitch Avnet.

One of the areas of expertise offered by the firm is supporting the efforts of independent HNW and UHNW wealth managers.  

Avnet and his team pride themselves on delivering a “plug and play” solution for wealth management firms that need on demand guidance and advice, as well as ongoing and routine maintenance of their respective compliance programs.

WSR interviewed Avnet to get his views on the fast-changing compliance landscape for HNW and UHNW-focused wealth managers – And how the leaders of these firms should be thinking about their regulatory and compliance risk functions.

WSR:  Over the past decade, there’s been an explosion of growth within the UHNW and HNW wealth management segment, with many senior professionals from large private banks and wire houses forming – or joining – independent RIAs and family offices focused on this client segment.    

What do you see as the top three compliance-related challenges for these break-away advisors, and how can they be addressed?

Avnet:  The top three challenges we see for “break-away” advisors are regulatory change management, risk appetite and remaining relevant.  Let’s dive into each of these items in more detail.

First, with regulatory change management, we’re talking about the ability for small independent organizations to keep pace with regulatory changes.  This will continue to be a challenge for the industry.

Given the lack of internal resources allocated to assessing rule changes, monitoring a firm’s activities, and administering compliance programs, HNW and UHNW-focused independent firms will need to seek alternative solutions to help them sustain and scale their businesses. 

Next, let’s discuss risk appetite.  While smaller organizations are nimble and can quickly pivot to meet the needs of their clients, there is always the challenge of growth and scalability.  

When facing these challenges, organizations must establish a well-defined risk posture and profile.  It’s important to ensure that the amount of risk a wealth management business is willing to accept is in line with meeting its overall fiduciary obligations to its clients.   

Is this a risk you’re willing to take?

A robust compliance monitoring program is required to ensure an organization stays true to its core values – And doesn’t veer off seeking “one off” opportunities that may bring undue or unwanted risk and regulatory attention to the firm.

Finally, what I mean by remaining relevant:  Given the arsenal of tools available at private banks and wirehouses, independent wealth managers need to distinguish themselves through their service models.  

With limited internal resources, these firms should look to outsource areas of their operations to those who have economies of scale.  With that said, outsourcing does bring its own set of challenges.  

To the extent these organizations are leveraging third party technologies or service providers to meet regulatory requirements – it is incumbent on these firms to understand they ultimately own the risk.  And as such, they must create protocols to ensure that any of the services / support being outsourced are being monitored accordingly.  

WSR:  HNW and UHNW wealth managers are typically expected by their clients to provide access to private investment vehicles and alternative assets.  What are the “must have” compliance safeguards for newly launched HNW and UHNW wealth managers that want to align their clients with these types of investment solutions?

Avnet: This is where HNW and UHNW wealth managers must ensure they have a robust new product review and approval process in place to conduct appropriate due diligence on each opportunity, making clear decisions on which client profiles are – and which clients are not – eligible to participate.    

Part of the new product approval process should also include training requirements for any investment adviser representative who intends to engage his or her clients in these opportunities.  

Keep your eyes on the prize!

Wealth managers should consistently assess “like-type” products in the market, compare fees, costs, etc.  They need to make sure they are meeting their fiduciary obligations and providing the most appropriate options to the client.

WSR:  If you could give just one piece of compliance advice to a wealth manager who is seeking to aggressively grow his or her business in the HNW and UHNW wealth segment, what would it be?

Avnet:  While this advice may seem simple, it’s something that has consistently proven true over the span of my career:  If you always seek to do the right thing by your clients, your clients will do the right thing by you.   

Mitch Avnet, Founder & Managing Partner, Compliance Risk Concepts

From a compliance perspective, this means understanding your clients’ investment objectives and overall risk appetite.   

This is an area that organizations assess at client onboarding, but they don’t necessarily do a great job of revisiting and revising on an as-needed basis.   

Circumstances change – and needs change accordingly.   As a fiduciary, it is incumbent for a wealth manager to ensure while a decision may make sense today, it may not tomorrow.

Michael Madden, Contributing Editor & Research Analyst, can be reached at 

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