Soaring popularity of digital client prospecting and financial advisor marketing solutions carry their fair share of potential risks
Last week, our digital client prospecting and marketing story got people talking. The industry’s hunger for new ways to sustain scalable growth seems to be pushing the digital revolution into every aspect of the wealth management space. Already underway before the pandemic, the digitization of prospecting and marketing went into overdrive in the spring of last year,
Responses to our latest feature by WSR Contributing Editor Ellen Sheng have run from digital evangelists voicing fervent hopes about the potential of these solutions, to traditionalists concerned about losing a sense of personal connection with clients.
However, one sentiment was consistent across all reader commentary that we received: The full scope of the compliance, regulatory and legal risks involved with these new tools are not yet completely understood.
Mitch Avnet, Founder and Managing Partner of Compliance Risk Concepts (CRC), a national consultancy that delivers highly customized, outsourced compliance solutions for wealth management firms across the country, has given this topic more thought than many in the industry.
Avnet, who founded New York City-based CRC in 2013, growing the firm’s business to encompass multiple offices from coast to coast, told WSR that making the labor-intensive, time-consuming client prospecting and business marketing process more scalable is understandably alluring.
However, Avnet also emphasizes, “The fact is these tools have a significant level of potential commercial and compliance risk” is not properly vetted and onboarded by firms and their professionals.
WSR recently connected with Avnet, who has over 25 years of financial services compliance experience – as both a senior executive and a consultant – on the two most popular compliance and regulatory questions from WSR readers about the risks in digital client prospecting and financial advisor marketing solutions.
WSR: Readers would like to know what is the most significant, unique risk when using a digital platform?
Avnet: On the surface, digital client prospecting solutions seem like a great innovation for wealth management firms and their financial advisors, especially after the pandemic ended in-person meetings and networking. However, there are specific risks involved in using these tools.
First, let’s start with that not all digital marketing and client prospecting tools are of equal quality.
Some digital client prospecting solutions are truly “top shelf” – They bring together an exclusive set of would-be investors with financial advisors who are thoroughly vetted beforehand, all of which could drive significant value for the firms leveraging these tools.
And then, you have the rest of the pack. The reality is that there are multiple tech-enabled client prospecting solutions that are basically digital cold call sheets.
These tools provide a modernized version of the “dial for dollars” approach to client prospecting.
And what’s the problem with that? Well, this approach exposes financial advisors and their firms to questions about suitability, requests to be placed on do-not-call lists and more. These are outcomes that have the potential to become regulatory and compliance problems down the line.
Put more directly, truly knowing what you are getting is critical when considering a digital client prospecting solution of any kind.
WSR: What should firms and advisors ask of their digital prospecting and marketing solutions provider to understand these risks?
Avnet: From an operational perspective, it comes down to one simple question that advisors and firms must ask themselves – What do the firm and advisor need to get out of this tool? Once this is known, users will be able to ask better questions of the solutions provider and make informed decisions.
On the compliance side, it’s a bit more complicated. These tech-based solutions do not allow a firm or advisor to sidestep compliance or firm-specific client marketing and outreach regulations.
In fact, the rise in popularity of digital client prospecting tools make it that much more important for firms to have robust protocols in place.
Because these solutions allow a firm to scale outreach, amplified outreach naturally exposes firms to escalated risk of compliance violations if not used appropriately.
Firms large enough to need these tools but too small to have full-time compliance teams are at particular risk of non-compliance in using these tools.
Having a legal and compliance team, either internal or outside advisors, review the solution before using them is mission critical for risk mitigation.
At the end of the day, whether we’re talking about digital or traditional prospecting and marketing, all of these activities must be executed in a fully compliant manner. Not doing so can carry a significant cost!
Michael Madden, Contributing Editor & Research Analyst, can be reached at firstname.lastname@example.org