Reduced Audit Time by 30% with Centralized System

Reduced Audit Time by 30% with Centralized System

Executive Summary

Elevate, a Registered Investment Advisor (RIA) managing over $500 million in assets, struggled with a fragmented compliance process leading to lengthy and costly audit preparations. Golden Door Asset proposed a centralized compliance management system integrating data from multiple sources into a single platform. By implementing MetricStream and building integrations with Salesforce and Box, Elevate reduced audit preparation time by 30%, resulting in significant cost savings and improved operational efficiency.

The Challenge

Elevate, like many growing RIAs, faced increasing challenges managing compliance obligations as their assets under management (AUM) scaled. Their compliance data was siloed across multiple systems, including:

• Client Relationship Management (CRM): Salesforce, used for client data, communication logs, and investment profiles.
• Document Storage: Box, housing client agreements, regulatory filings, and internal policies.
• Spreadsheets: Used for tracking compliance tasks, monitoring employee trading activity, and documenting AML (Anti-Money Laundering) procedures.
• Email: Used for internal communication and external correspondence with regulators and auditors, often containing critical compliance-related information.

This fragmented approach created several key problems:

• Lengthy Audit Preparation: Compiling the necessary documentation for audits was a time-consuming and manual process. Elevate estimated that each audit, conducted annually and typically lasting 2 weeks, consumed an average of 120 person-hours. This represented a significant drain on resources, costing approximately $15,000 per audit based on an average compliance staff hourly rate of $125.
• Increased Risk of Errors: Manual data entry and reconciliation across multiple systems increased the risk of human error. A single mistake in a compliance report could lead to regulatory scrutiny and potential fines. The firm estimated that the risk of a reportable error was 8% prior to the new system.
• Lack of Real-Time Visibility: Compliance officers lacked a real-time, centralized view of the firm's compliance posture. This made it difficult to proactively identify and address potential issues before they escalated.
• Inefficient Monitoring: Monitoring employee trading activity, required under SEC Rule 204A-1 (Code of Ethics), was particularly challenging due to the need to manually gather data from multiple sources and compare it to approved security lists. This process took an average of 8 hours per employee per quarter, resulting in an annual cost of approximately $8,000 for a firm with 25 employees.
• Version Control Issues: Maintaining accurate version control for compliance policies and procedures was problematic, leading to confusion and potential non-compliance.

These challenges collectively threatened Elevate's ability to efficiently manage its compliance obligations and maintain a robust compliance program. The firm recognized the need for a more streamlined and integrated solution to mitigate these risks and improve operational efficiency.

The Approach

Golden Door Asset worked closely with Elevate's compliance team to develop a comprehensive and tailored solution based on a centralized compliance management system. The approach involved the following key steps:

1. Needs Assessment: A thorough assessment was conducted to understand Elevate's specific compliance requirements, data sources, and workflow processes. This involved interviews with key stakeholders, a review of existing documentation, and an analysis of Elevate's current technology infrastructure.
2. Solution Design: Based on the needs assessment, Golden Door Asset designed a centralized compliance management system architecture using MetricStream as the core platform. MetricStream was selected for its robust features, scalability, and ability to integrate with Elevate's existing systems.
3. Data Migration Strategy: A detailed data migration strategy was developed to ensure a seamless transition of data from existing systems to MetricStream. This involved data cleansing, mapping, and transformation to ensure data accuracy and consistency.
4. Integration Development: Golden Door Asset developed custom integrations between MetricStream, Salesforce, and Box. The Salesforce integration allowed for the automatic synchronization of client data, including investment profiles and communication logs. The Box integration provided seamless access to compliance-related documents, such as client agreements and regulatory filings, directly within MetricStream.
5. Workflow Automation: Key compliance workflows, such as employee trading monitoring and AML compliance, were automated within MetricStream. This reduced manual effort and improved the efficiency and accuracy of these processes. For example, the employee trading monitoring workflow was configured to automatically flag potential conflicts of interest based on pre-defined rules and thresholds.
6. Training and Support: Comprehensive training was provided to Elevate's compliance team to ensure they could effectively use the new system. Ongoing support was provided to address any questions or issues that arose.
7. Phased Implementation: The implementation was conducted in a phased approach to minimize disruption to Elevate's operations. The initial phase focused on migrating core compliance data and implementing basic workflows. Subsequent phases involved implementing more advanced features and integrations.

The strategic thinking behind this approach centered on the following principles:

• Centralization: Consolidating all compliance-related data and processes into a single platform to improve visibility and efficiency.
• Automation: Automating repetitive tasks and workflows to reduce manual effort and the risk of errors.
• Integration: Integrating existing systems to ensure seamless data flow and eliminate data silos.
• Proactive Compliance: Enabling proactive identification and mitigation of compliance risks through real-time monitoring and reporting.
• Scalability: Ensuring the solution can scale to meet Elevate's future needs as their AUM continues to grow.

Technical Implementation

The technical implementation involved the following key components and integrations:

• MetricStream: Used as the core compliance management platform. MetricStream provided features for policy management, risk assessment, incident management, audit management, and reporting. The platform was configured to meet Elevate's specific compliance requirements, including SEC rules, FINRA regulations, and internal policies.
• Salesforce Integration: A custom API integration was developed to synchronize client data between Salesforce and MetricStream. This integration ensured that client information, such as account details, investment objectives, and risk tolerance, was automatically updated in MetricStream. The API used OAuth 2.0 for secure authentication and utilized webhooks to trigger real-time data synchronization.
• Box Integration: A custom integration was developed to provide seamless access to compliance-related documents stored in Box. This integration allowed compliance officers to access and manage documents, such as client agreements, regulatory filings, and internal policies, directly within MetricStream. The Box integration used the Box SDK for Java and supported features such as version control and document search.
• Employee Trading Monitoring Workflow: This workflow was automated using MetricStream's workflow engine. The workflow automatically pulled employee trading data from brokerage statements (manually uploaded but planned for API integration in the future) and compared it to approved security lists and pre-defined rules. Potential conflicts of interest were automatically flagged for review by the compliance team. The rules engine used a combination of regular expressions and mathematical calculations to identify potential violations.
• AML Compliance Workflow: This workflow was also automated using MetricStream's workflow engine. The workflow guided compliance officers through the process of conducting customer due diligence (CDD) and enhanced due diligence (EDD), as required by AML regulations. The workflow included tasks such as verifying customer identity, screening against watch lists, and monitoring transaction activity.
• Reporting & Analytics: MetricStream's reporting and analytics capabilities were used to generate real-time reports on Elevate's compliance posture. These reports provided insights into key compliance metrics, such as the number of open compliance tasks, the status of employee training, and the number of reported incidents. The reports were designed to meet the specific reporting requirements of Elevate's management team and regulators.

The implementation also involved the following calculations:

• Cost Savings Calculation: The reduction in audit preparation time was directly correlated to cost savings. The formula used was: Cost Savings = (Reduction in Audit Time) * (Hourly Rate of Compliance Staff).
• Risk Reduction Calculation: The reduction in the risk of reportable errors was calculated using a pre- and post-implementation risk assessment.

Results & ROI

The implementation of the centralized compliance management system yielded significant results for Elevate:

• Reduced Audit Preparation Time by 30%: Audit preparation time was reduced from an average of 120 person-hours per audit to 84 person-hours per audit. This resulted in a cost savings of approximately $4,500 per audit (36 hours * $125/hour).
• Reduced Risk of Errors by 50%: The risk of reportable errors was reduced from 8% to 4% due to improved data accuracy and workflow automation. This significantly reduced the potential for regulatory fines and reputational damage.
• Improved Compliance Efficiency: Compliance officers were able to spend less time on manual tasks and more time on strategic compliance activities, such as risk assessment and policy development.
• Enhanced Real-Time Visibility: Compliance officers gained a real-time, centralized view of the firm's compliance posture, enabling them to proactively identify and address potential issues.
• Streamlined Employee Trading Monitoring: The automated employee trading monitoring workflow reduced the time spent on this activity by 75%, freeing up valuable time for the compliance team.
• Increased Policy Adherence: Centralized policy management and distribution ensured that all employees were aware of and compliant with the firm's policies and procedures.

Quantifiable ROI:

• Annual Cost Savings: $4,500 per audit * 1 audit per year = $4,500
• Time Savings (Employee Trading Monitoring): 6 hours per employee per quarter saved = 6 * 25 employees * $125/hour = $9,375 annually.
• Total Annual ROI: $4,500 + $9,375 = $13,875

The initial investment in the compliance management system was recouped within approximately 2 years, demonstrating the significant long-term value of the solution. Furthermore, the reduced risk of errors and improved compliance efficiency contributed to a stronger and more resilient compliance program for Elevate.

Key Takeaways

1. Centralize Compliance Data: Siloed data increases risk and inefficiency. Invest in a centralized system to streamline your compliance processes.
2. Automate Key Workflows: Automate repetitive tasks like employee trading monitoring and AML compliance to reduce manual effort and errors.
3. Integrate Existing Systems: Connect your CRM, document storage, and other systems to your compliance platform to ensure seamless data flow.
4. Invest in Training: Ensure your compliance team is properly trained on the new system to maximize its benefits.
5. Measure Your ROI: Track key metrics such as audit preparation time, error rates, and compliance costs to measure the ROI of your compliance investments.

About Golden Door Asset

Golden Door Asset builds AI-powered intelligence tools for RIAs. Our platform helps advisors streamline compliance, gain deeper client insights, and optimize investment strategies. Visit our tools to see how we can help your practice.