Blog / Wealth Management

With regulation now estimated to account for 20% of large financial institutions’ operational budgets, advice businesses should have a handle on forecasting the impact of regulatory compliance to their bottom line. But with the forthcoming GDPR and MiFID, can you keep your eye on the ball?

An experiment – hiding in plain sight

Imagine you’re asked to watch a short video in which six people pass a basketball back and forth among themselves. While you watch, you’re told to keep a count of the number of passes made by the people in white shirts. At some point, a man in a gorilla costume strolls into the middle of the action, faces the camera and thumps his chest, then leaves, spending nine seconds on screen.

Would you see the gorilla?

Almost everyone intuitively says: "yes, of course I would." After all, how could something so obvious go unnoticed?

But when some boffins at Harvard University carried out this experiment several years ago, they found that half of the people who watched the video and counted the passes missed the gorilla. It was as though the gorilla was invisible.

This experiment reveals a couple of important things: by being so focused on something, we can miss a lot of what goes on around us. 

By being so focused on something, we can miss a lot of what goes on around us; we have no idea we are missing so much.

The devil is in the detail

When it comes to the myriad of regulatory challenges currently in flight (MiFID II and GDPR primarily) it’s entirely forgivable to get distracted with the obvious and immediate costs associated with compliance - such as the widely quoted £2.5bn MiFID II is set to cost the industry - that it’s possible to miss other, equally significant costs, even though they’re right there, hiding in plain sight.

6 ways to better manage the cost of regulatory compliance

1. Back office backbone -Your back-office system should be able to help you identify and communicate with those clients affected by regulatory change quickly and efficiently. If it doesn’t, you’re likely to incur extra ongoing costs in manual client segmentation exercises that expose your business to unnecessary risks.

2. Use the right tools for the job - Your technology software provider should have taken upcoming regulation into account and give you confidence that the tools you use will fully support any changes you need to make. This should help you manage any change efficiently and without racking up additional costs. 

3. Automate where you can - Ideally your tech should go further; automating many processes and monitoring when it comes to client consent and contact preferences (imminent under GDPR) while enabling you to set retention periods for documents, this will save valuable time, resource and costs.

4. Get smart on data - With GDPR the accuracy of the client data held in your business has to be accurate, easy to interact with (to enable you to comply with customer consent and portability requests), and consistent across all integrated technology touch points. If your data is not accurate and integrated, you’ll have to make sure it is. It's reasonable to predict this standard approach to data protection could see other countries adopt it too. 

5. Check the small print - The direction of regulatory travel is clear; you’re going to have to hold a lot more client data for longer. It should not cost you extra to hold increasingly large amounts of data in the cloud. Check this one – we don’t charge for additional data storage but others do. 

6. Make auditing easy - For those businesses operating across multiple locations, there is the additional cost of travel for your compliance officer to meet the requirement for random sampling of processes. Remote auditing via your technology solution not only removes this entirely, but if it also includes rules-based automated alerts, you have a dual system in place that's not only more cost-efficient, it can also give you greater peace of mind.
These are just some of the costs associated with regulatory compliance but there are likely to be more specific to your advice business.

While costs are part and parcel of running a successful and compliant advisory business, it makes sense to know how to spot the invisible costs.

While costs are part and parcel of running a successful and compliant advisory business, it makes sense to know how to spot the invisible gorilla of costs. It also makes sense to identify the areas in your business where an integrated technology solution will help you comply while keeping costs down to a minimum.

We're committed to ensuring our clients are fully enabled for MiFID II and GDPR. Find out how we're getting ready and how our technology can help you meet the requirements.

A version of this article first appeared in Professional Adviser, UK.




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