The SEC Is Coming, But Prepared RIAs Have Nothing To Fear

Compliance Isn’t A Moving Target – We Know What Regulatory Bodies Are Doing. Instead Of Waiting For The Other Shoe To Drop, RIAs Should Have Compliance Solutions In Place To Proactively Tackle Challenges Before They Arise.

The SEC’s recent crackdown on recordkeeping violations sent shockwaves through the industry. In its February announcement, big names like Huntington Investment Company are facing a hefty $1.25 million penalty despite self-reporting their infractions. This highlights the SEC’s zero-tolerance approach to compliance, regardless of intent. The total cost to the 16 firms named was a staggering $81 million.

This aggressive enforcement underscores a crucial point: compliance isn’t a checkbox exercise. In today’s rapidly evolving regulatory landscape, it’s definitely a race against the clock. Being proactive, not reactive, is essential. It’s about staying ahead of the curve, not scrambling to catch up.

For RIAs, compliance isn’t just a legal obligation – it’s the lifeline that keeps their business afloat and their clients’ financial dreams on track. Unfortunately, the industry is largely unprepared. With only a fraction actively fostering a culture of compliance among its employees, a real SEC crackdown could have devastating consequences.

SEC Priorities. No Sweat. Strong Compliance Already Has You Covered.

But wealth management firms with robust compliance programs can breathe easy. When the SEC announced its 2024 examination priorities, it was more of a confirmation than a surprise to these firms. After all, these RIAs have committed to a culture of compliance already – they have strong processes, attestations, recordkeeping and data organization in place.

Wealth management firms with robust compliance programs can breathe easy.

These future-proof RIAs don’t fear the SEC because they’re prepared for it. They have built a robust infrastructure that streamlines processes, minimizes errors and allows them to demonstrate a consistent track record of meeting regulatory requirements. Here are the three pillars of their success:

Onboarding on autopilot and attestations made easy: There’s no manual onboarding or chasing down missing attestations for these RIAs. They use the right software platform to automate their process, they capture attestations electronically during onboarding, and they send automated annual reminders. It’s a “set it and review it” system that saves them time and ensures everything’s in order.

Fearless marketing with SEC rule confidence: They don’t let the SEC Marketing Rule stifle their growth. These RIAs are marketing powerhouses and they do it confidently. Their secret weapon? A platform that meticulously tracks and stores all marketing materials and applications. Automated reminders keep them on top of data updates to ensure compliance without hindering their marketing efforts.

Proactive trade monitoring and effortless recordkeeping: Extensive trade monitoring solutions are the norm here, which allows RIAs to identify and address potential issues before they become problems. So, when the SEC knocks on the door, a simple click provides immediate access to a comprehensive record of trades. No more scrambling for paperwork because it’s all readily available, demonstrating a proactive approach to compliance.

These success pillars bring us back to the million-dollar lesson from Huntington Investment Company. It’s a good reminder that the SEC wants to see a consistent track record of proactive compliance. And, by adopting these strategies, you can build a future-proof RIA that not only thrives today, but remains prepared for whatever the evolving regulatory landscape throws your way.

What The Future Of RIA Compliance Holds (Don’t Panic!)

While there likely won’t be a “compliance hero” knocking on your door, you can expect the right software to “save the day.” The future relies on the platforms that are:

Future-focused, not past-tense: Ones that embrace AI-powered solutions that are designed for the evolving regulatory landscape.

Open to innovation: Here’s where you should think about open architecture, not closed doors. White labeling and seamless integrations are key to a customized compliance experience.

User-friendly first: Platforms should prioritize intuitive interfaces and a smooth user experience for your team.

Always accessible: Cloud-based solutions ensure anytime, anywhere access to your compliance data.

Think of technology as a living thing.

Constantly evolving: And, finally, think of technology as a living thing. Be sure to invest in a platform that continuously develops to meet the latest regulatory demands.

Is Compliance In Your DNA? It Should Be!

I can’t end this article without revisiting the SEC one last time. The recent fines and compliance misses shouldn’t be happening. In fact, they don’t have to happen. We can do better.

It doesn’t matter who your firm is, or who your clients are, the risks are the same across the board. The crackdown on violations is real and the potential fines are huge. So taking care of your compliance is essential. To do that takes awareness and ownership at every level of the organization – from leadership to frontline staff.

This goes beyond compliance manuals. Promoting open communication, providing comprehensive training and implementing effective oversight mechanisms are crucial. By fostering a culture where compliance is ingrained in the company’s DNA, you create a proactive environment.

A culture of compliance isn’t a burdensome obligation, it’s a strategic advantage.

We need to think outside the box. A culture of compliance isn’t a burdensome obligation, it’s a strategic advantage. By embracing this mindset, your firm stays prepared for anything and avoids potential fines. It’s proactive protection – not just for your reputation and financial stability, but also for building trust with clients and stakeholders.

Patrick Hunt is the CEO of Smartria.

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