Achieved 90% Accuracy in Regulatory Change Implementation

Achieved 90% Accuracy in Regulatory Change Implementation

Executive Summary

Montgomery Retirement, a leading retirement planning firm overseeing $500 million in assets under management, faced a significant challenge in maintaining continuous compliance amidst the ever-changing regulatory landscape. Golden Door Asset partnered with Montgomery Retirement to develop a structured regulatory change management system with automated tracking and responsibility assignment. The result was a dramatic improvement in accuracy, achieving a 90% success rate in regulatory change implementation and significantly reducing potential compliance violations.

The Challenge

For Montgomery Retirement, keeping pace with regulatory changes was a constant uphill battle. The firm, responsible for the retirement security of over 2,000 clients, found that the sheer volume and complexity of new regulations posed a significant operational risk. Before partnering with Golden Door Asset, Montgomery Retirement relied on a manual, decentralized system for tracking and implementing regulatory updates. This system involved multiple team members, spreadsheets, and email chains, leading to inconsistencies, delays, and increased vulnerability to errors.

Specifically, the following challenges plagued their operations:

• Manual Tracking: The process of monitoring regulatory updates involved manually scanning various websites, publications, and industry newsletters. This consumed an estimated 40 hours per week for the compliance team, which could have been better spent on strategic planning and client service.
• Delayed Implementation: Due to the manual nature of the process, regulatory changes were often implemented with significant delays. This delay increased the risk of non-compliance and potential penalties. For instance, a recent change in ERISA regulations regarding fee disclosures wasn't fully implemented until six weeks after the effective date, potentially exposing the firm to fines.
• Inconsistent Application: Different team members interpreted and applied regulatory changes differently, leading to inconsistencies in client portfolios and advice. An internal audit revealed that 15% of client accounts were not fully compliant with recent SEC marketing rules changes, resulting in potentially misleading advertising.
• Increased Risk of Errors: The manual nature of the process made it highly susceptible to human error. Data entry errors, missed deadlines, and misinterpretations of regulatory requirements all contributed to increased risk. The firm estimated that errors in regulatory implementation cost them an average of $25,000 per year in remediation efforts and potential legal fees.
• Difficulty in Demonstrating Compliance: In the event of an audit, demonstrating compliance was a cumbersome and time-consuming process, requiring the compilation of numerous documents and spreadsheets. This put a strain on resources and increased the firm's vulnerability to regulatory scrutiny. For example, preparing for a recent SEC audit required 120 hours of staff time.

These challenges created a significant burden on Montgomery Retirement, hindering their ability to focus on their core mission of providing personalized retirement planning services to their clients. The firm realized the need for a more efficient and reliable system for managing regulatory change.

The Approach

Golden Door Asset took a multi-faceted approach to address Montgomery Retirement's compliance challenges. Our strategy focused on creating a centralized, automated system that would streamline the process of monitoring, interpreting, and implementing regulatory changes.

Our approach consisted of the following key steps:

1. Comprehensive Needs Assessment: We conducted a thorough assessment of Montgomery Retirement's existing compliance processes, identifying pain points, vulnerabilities, and opportunities for improvement. This involved interviews with key stakeholders, a review of existing documentation, and an analysis of past compliance audits.
2. Customized Regulatory Change Tracking System: Based on the needs assessment, we developed a custom-built regulatory change tracking system tailored to Montgomery Retirement's specific requirements. This system integrated with regulatory update feeds from leading sources such as Lexology, Wolters Kluwer, and directly from the SEC and FINRA websites.
3. Automated Task Assignment and Tracking: The system automatically assigns responsibility for specific regulatory changes to relevant team members based on their expertise and roles. It also tracks the progress of each implementation task, providing real-time visibility into the status of regulatory compliance.
4. Standardized Interpretation and Application Guidelines: We developed standardized guidelines for interpreting and applying regulatory changes, ensuring consistency across all client accounts. These guidelines were regularly updated to reflect changes in regulations and industry best practices. We also provided comprehensive training to Montgomery Retirement's team on the new system and guidelines.
5. Regular Compliance Audits: We implemented a schedule of regular compliance audits to identify any gaps in implementation and address any potential compliance violations. These audits were conducted by Golden Door Asset's team of compliance experts, providing an independent assessment of Montgomery Retirement's compliance posture.
6. Continuous Improvement: We continuously monitored the effectiveness of the system and made adjustments as needed to ensure that it continued to meet Montgomery Retirement's evolving needs. This included regularly reviewing the system's performance, gathering feedback from users, and incorporating new regulatory updates.

The strategic thinking behind this approach was to move from a reactive, manual system to a proactive, automated system that would minimize the risk of non-compliance and free up valuable resources for strategic planning and client service. This required a significant investment in technology and training, but the long-term benefits in terms of reduced risk, increased efficiency, and improved client service justified the investment.

Technical Implementation

The custom-built regulatory change tracking system implemented for Montgomery Retirement involved a complex interplay of technologies and processes. Key elements included:

• Regulatory Data Aggregation: The system pulls regulatory updates from multiple sources, including Lexology, Wolters Kluwer, the SEC's EDGAR database, and FINRA's website. This data is ingested using APIs and web scraping techniques. A natural language processing (NLP) engine analyzes the text of each update to identify key terms and concepts, classifying the updates based on their relevance to different areas of Montgomery Retirement's business (e.g., investment management, retirement planning, compliance).
• Rule-Based Assignment Engine: A rule-based engine automatically assigns responsibility for reviewing and implementing each regulatory change based on predefined rules. These rules take into account the type of regulatory change, the expertise of different team members, and their current workload. For instance, a change to SEC Rule 206(4)-1 (the Advertising Rule) might be automatically assigned to the marketing team and the compliance officer.
• Workflow Management System: The system incorporates a workflow management system that tracks the progress of each regulatory change from initial notification to final implementation. This system includes features such as task assignment, deadline tracking, progress reporting, and automated reminders. For example, if a team member fails to complete a task by the deadline, the system automatically sends a reminder email and escalates the issue to their supervisor.
• Compliance Audit Trail: The system maintains a detailed audit trail of all regulatory changes, including the date of notification, the responsible party, the implementation status, and any related documentation. This audit trail provides a comprehensive record of Montgomery Retirement's compliance efforts, which can be used to demonstrate compliance to regulators and auditors.
• Integration with Portfolio Management System: The regulatory change tracking system is integrated with Montgomery Retirement's portfolio management system (e.g., Tamarac, Orion) to ensure that regulatory changes are reflected in client portfolios. This integration allows for automated alerts when a regulatory change requires a modification to a client's portfolio. For instance, a change in tax law that affects retirement account distributions can trigger an alert to review affected client accounts.
• Risk Assessment Module: A risk assessment module evaluates the potential impact of each regulatory change on Montgomery Retirement's business. This module uses a risk matrix to assess the likelihood and severity of different types of compliance violations. The output of the risk assessment module is used to prioritize implementation efforts and allocate resources accordingly.

The success of the technical implementation depended on seamless integration of these components and the ability to handle large volumes of regulatory data in a timely and accurate manner.

Results & ROI

The implementation of Golden Door Asset's regulatory change management system yielded significant improvements for Montgomery Retirement across multiple key performance indicators:

• Increased Accuracy in Regulatory Change Implementation: The accuracy of regulatory change implementation improved from 60% to 90%. This translates to a 50% reduction in errors and potential compliance violations. This means that previously, 4 out of 10 regulatory changes were not being implemented correctly, whereas now only 1 out of 10 has issues.
• Reduced Compliance Costs: The firm saw a 30% reduction in compliance costs, primarily due to reduced remediation efforts and legal fees. This translates to an annual savings of approximately $7,500 based on their previous annual compliance error remediation costs of $25,000.
• Improved Efficiency of Compliance Team: The compliance team's efficiency increased by 50%, freeing up an estimated 20 hours per week for strategic planning and client service. This allows the compliance team to focus on higher-value activities, such as developing new compliance programs and conducting risk assessments.
• Reduced Audit Preparation Time: The time required to prepare for audits decreased by 60%, from 120 hours to 48 hours. This allows Montgomery Retirement to respond quickly and efficiently to regulatory inquiries, minimizing disruption to their business.
• Enhanced Client Confidence: The improved accuracy and transparency of the compliance process enhanced client confidence and trust. Clients now have greater assurance that their accounts are being managed in accordance with all applicable regulations. A recent client survey indicated a 15% increase in client satisfaction with Montgomery Retirement's compliance efforts.
• Measurable ROI: The total return on investment (ROI) for the regulatory change management system was estimated to be 200% within the first year. This ROI is based on the cost savings, efficiency gains, and increased client satisfaction resulting from the implementation of the system.

These results demonstrate the significant value that Golden Door Asset's regulatory change management system can provide to RIAs and wealth managers. By automating and streamlining the compliance process, we help firms reduce risk, improve efficiency, and enhance client service.

Key Takeaways

Here are the key takeaways from Montgomery Retirement's experience that can be applied to other advisory firms:

1. Centralization is Key: Moving from a decentralized, manual compliance process to a centralized, automated system is essential for managing regulatory change effectively.
2. Automation Saves Time and Reduces Errors: Automating tasks such as regulatory data aggregation, task assignment, and progress tracking can significantly reduce the time and effort required for compliance while minimizing the risk of errors.
3. Integration is Critical: Integrating the regulatory change tracking system with other core systems, such as portfolio management systems, is essential for ensuring that regulatory changes are reflected in client accounts.
4. Continuous Monitoring and Improvement are Essential: Regularly monitoring the effectiveness of the system and making adjustments as needed is critical for ensuring that it continues to meet the firm's evolving needs.
5. Training and Communication are Crucial: Provide comprehensive training to team members on the new system and guidelines to ensure that they understand how to use it effectively. Maintain open communication channels to address any questions or concerns.

About Golden Door Asset

Golden Door Asset builds AI-powered intelligence tools for RIAs. Our platform helps advisors automate compliance tasks, improve client communication, and uncover new growth opportunities. Visit our tools to see how we can help your practice.