Compliance Score Jump: Automated KYC Streamlines 200 Accounts

Compliance Score Jump: Automated KYC Streamlines 200 Accounts

Executive Summary

Richardson & Associates, a growing Registered Investment Advisor (RIA) firm, faced increasing challenges managing Know Your Customer (KYC) and suitability documentation manually. This inefficient process threatened to negatively impact their compliance score and severely limit their capacity to onboard new clients. By implementing automated KYC/AML screening and suitability assessments with a third-party compliance platform integrated with their existing CRM, Richardson & Associates successfully onboarded 200 new accounts within a six-month period while significantly improving their compliance score, mitigating potential regulatory penalties, and freeing up valuable advisor time.

The Challenge

Richardson & Associates, managing over $250 million in assets for high-net-worth individuals and families, experienced rapid growth, adding an average of 10 new clients per month. However, their manual KYC and suitability documentation processes became a significant bottleneck. Each new client required an average of 8 hours of advisor and administrative staff time to complete, verify, and document the necessary information. This involved manual data entry across multiple systems, including their CRM (Tamarac Advisor View), compliance checklists stored in spreadsheets, and third-party databases for AML (Anti-Money Laundering) screening.

The manual process presented several critical challenges:

• Time-Consuming Onboarding: The 8-hour per client onboarding process translated to roughly 80 hours per month solely dedicated to KYC and suitability, severely limiting the time available for client relationship management and business development.

• Increased Risk of Errors: Manual data entry and verification significantly increased the risk of errors and omissions, potentially leading to compliance violations and regulatory fines. Even a small error, such as a misspelled name or incorrect address, could trigger a false positive in AML screening, requiring further investigation and delaying the onboarding process. The estimated error rate was 3%, resulting in an average of 3 compliance exceptions per month requiring extensive investigation and remediation.

• Compliance Score Deterioration: The firm's reliance on manual processes resulted in an inconsistent application of KYC procedures across all clients. The firm was warned of potential compliance score deterioration based on mock audits. The existing compliance score was 86 out of 100. Below a 70 and the firm faced potential penalties. They knew that if they continued on their current trajectory, their score would continue to fall, risking penalties.

• Limited Scalability: The manual processes severely restricted the firm's ability to scale its operations. The firm projected an inability to onboard more than 12 new clients per month, effectively capping growth and hindering revenue potential by approximately $500,000 annually in projected fee revenue based on the average account size and fee structure. This growth stagnation also hampered the firm’s competitive advantage, as potential clients might choose RIAs with more streamlined onboarding experiences.

These challenges underscored the urgent need for a more efficient and automated solution to manage KYC and suitability documentation.

The Approach

Richardson & Associates adopted a phased approach to address their KYC and suitability challenges:

Phase 1: Solution Selection and Implementation

• Needs Assessment: The firm conducted a comprehensive needs assessment to identify the key requirements for an automated solution. This included identifying essential features such as automated KYC/AML screening, suitability assessments based on risk tolerance and investment objectives, integration with their existing CRM, and robust reporting capabilities.
• Vendor Evaluation: The firm evaluated several compliance platforms, focusing on factors such as functionality, ease of use, integration capabilities, security, and cost. They chose ComplySci for its comprehensive features, strong integration capabilities with Tamarac Advisor View, and competitive pricing.
• Data Migration and Configuration: Existing client data was migrated from Tamarac Advisor View to ComplySci. The platform was configured to reflect the firm's specific KYC and suitability policies, including risk tolerance questionnaires, investment product suitability guidelines, and AML screening thresholds.
• Staff Training: All advisors and administrative staff received comprehensive training on how to use the new platform. Training covered topics such as data entry, KYC/AML screening, suitability assessments, and reporting.

Phase 2: Process Automation

• Automated KYC/AML Screening: ComplySci was configured to automatically screen new clients against global watchlists and sanctions databases, such as those maintained by the Office of Foreign Assets Control (OFAC). This automated screening process significantly reduced the risk of onboarding clients with ties to illicit activities.
• Automated Suitability Assessments: The platform automatically generated suitability questionnaires based on client profiles and investment objectives. The results of these questionnaires were used to generate risk scores and recommend suitable investment strategies.
• CRM Integration: The integration with Tamarac Advisor View allowed for seamless data flow between the two systems. Client data entered into Tamarac Advisor View was automatically synced with ComplySci, eliminating the need for manual data entry. Likewise, KYC/AML screening results and suitability assessment reports generated in ComplySci were automatically saved to the client's profile in Tamarac Advisor View.
• Workflow Optimization: The firm streamlined its onboarding workflow by automating several manual tasks, such as sending reminder emails to clients to complete KYC questionnaires and generating compliance reports.

Phase 3: Ongoing Monitoring and Improvement

• Continuous Monitoring: The firm implemented continuous monitoring of KYC/AML screening results and suitability assessments to identify potential compliance issues. The platform automatically alerted compliance officers to any red flags, allowing them to investigate and remediate issues promptly.
• Regular Audits: The firm conducted regular audits of its KYC and suitability processes to ensure compliance with regulatory requirements and identify areas for improvement.
• Feedback and Optimization: The firm collected feedback from advisors and administrative staff on their experiences using the new platform. This feedback was used to continuously improve the system and optimize the onboarding workflow.

Technical Implementation

The technical implementation of the solution involved several key components:

• ComplySci Deployment: ComplySci was deployed as a cloud-based solution, minimizing the need for on-premise infrastructure and IT support. The platform was configured to comply with industry-standard security protocols and data privacy regulations, such as GDPR and CCPA.
• Tamarac Advisor View Integration: The integration with Tamarac Advisor View was achieved through a secure API (Application Programming Interface). This API allowed for real-time data synchronization between the two systems. The API used RESTful architecture with JSON data format for secure communication. The API was configured to sync the following client data fields: Name, Address, Date of Birth, Social Security Number, Investment Objectives, Risk Tolerance, and KYC/AML Status.
• KYC/AML Screening Configuration: ComplySci was configured to screen new clients against a comprehensive database of watchlists and sanctions databases, including:
  • OFAC (Office of Foreign Assets Control) Sanctions List
  • FBI Most Wanted List
  • Interpol Red Notices
  • EU Sanctions List
  • UN Sanctions List
• Suitability Assessment Configuration: The suitability assessment module was customized to reflect the firm's specific investment product guidelines. The platform generated risk scores based on client responses to a comprehensive questionnaire. Risk scores ranged from 1 (conservative) to 10 (aggressive). Investment recommendations were automatically generated based on the client's risk score and investment objectives.
• Reporting and Analytics: ComplySci generated comprehensive reports on KYC/AML screening results, suitability assessments, and compliance exceptions. These reports provided valuable insights into the firm's compliance posture and identified areas for improvement. Sample reports included:
  • KYC/AML Screening Summary Report
  • Suitability Assessment Report
  • Compliance Exception Report
  • Audit Trail Report

Results & ROI

The implementation of automated KYC and suitability checks yielded significant improvements in efficiency, compliance, and scalability for Richardson & Associates:

• Improved Compliance Score: The firm's compliance score increased from 86 to 97 within three months of implementing the solution. This improvement significantly reduced the risk of regulatory fines and reputational damage.
• Reduced Onboarding Time: The average onboarding time per client decreased from 8 hours to 2 hours, representing a 75% reduction. This freed up valuable advisor and administrative staff time, allowing them to focus on client relationship management and business development.
• Increased Onboarding Capacity: The firm was able to onboard 200 new accounts within a six-month period, a significant increase compared to the previous rate of 10 new clients per month. This increase in onboarding capacity translated to an additional $2.5 million in assets under management (AUM) and approximately $25,000 in increased fee revenue per month based on a 1% advisory fee.
• Reduced Error Rate: The error rate in KYC and suitability documentation decreased from 3% to less than 0.5%. This reduction significantly reduced the risk of compliance violations and regulatory fines. This resulted in saving over $5,000 per month in the investigation, remediation and labor hours associated with those errors.
• Cost Savings: The firm realized cost savings of approximately $15,000 per year by reducing the need for manual data entry and verification. This cost savings came from the reduced labor time devoted to manually entering data and correcting errors.
• Increased Advisor Productivity: Advisors were able to spend more time focusing on client needs and growing their business, leading to increased client satisfaction and improved revenue generation. Advisor productivity increased by an estimated 15%, measured by the number of client meetings and prospect engagements.

Key Takeaways

1. Automation is Essential for Scalability: Manual KYC and suitability processes can severely limit an RIA's ability to scale its operations. Automating these processes is essential for onboarding new clients efficiently and maintaining compliance.
2. Integration is Key: Integrating compliance platforms with existing CRM systems is crucial for seamless data flow and eliminating the need for manual data entry.
3. Continuous Monitoring is Critical: Implementing continuous monitoring of KYC/AML screening results and suitability assessments is essential for identifying potential compliance issues and mitigating risks.
4. Invest in Training: Providing comprehensive training to advisors and administrative staff on how to use the new platform is essential for ensuring its effective implementation and maximizing its benefits.
5. Data Accuracy and Quality: Data accuracy is paramount. Investing in data validation tools during data migration and ongoing data quality checks within the automated processes is crucial to prevent garbage-in, garbage-out scenarios.

About Golden Door Asset

Golden Door Asset builds AI-powered intelligence tools for RIAs. Our platform helps advisors automate tedious compliance tasks, enhance client relationships, and drive sustainable growth. Visit our tools to see how we can help your practice.