Reduced Compliance Costs by 20% with Technology Implementation

Reduced Compliance Costs by 20% with Technology Implementation

Executive Summary

Montgomery Retirement Solutions, a growing RIA managing over $500 million in assets, faced increasing compliance burdens due to manual processes, leading to high costs and potential errors. Golden Door Asset recommended and facilitated the implementation of a comprehensive compliance software solution. This resulted in a 20% reduction in compliance costs, freeing up valuable time for client service and business development.

The Challenge

Montgomery Retirement Solutions, like many growing RIAs, relied heavily on manual processes for crucial compliance functions. This reliance created several significant challenges. Their Chief Compliance Officer (CCO) and team spent an estimated 60% of their time manually reviewing client accounts, documenting communications, and preparing for audits. This resulted in an annual compliance expenditure of $125,000, a substantial burden given their size.

Specifically, manual processes created vulnerabilities in the following areas:

• Risk Assessments: The firm conducted annual risk assessments using spreadsheets and manually collected data, a process that took approximately 80 hours to complete. This approach was not only time-consuming but also lacked real-time data and dynamic risk scoring, potentially overlooking emerging threats. The estimated labor cost for this annual exercise was $8,000, factoring in the CCO's and a junior compliance officer's time.
• Audit Trails: Maintaining accurate and comprehensive audit trails was a significant pain point. Documenting client interactions, trade orders, and advisory fee calculations required painstaking manual effort, resulting in inconsistent record-keeping and difficulty in retrieving information during audits. Missing or incomplete documentation could result in fines of up to $5,000 per instance during an SEC audit.
• Regulatory Reporting: Preparing reports such as Form ADV and Form PF consumed valuable time and resources. Manual data entry and reconciliation increased the risk of errors, which could trigger regulatory scrutiny and potentially lead to fines. One near-miss occurred when a manual error in their Form ADV Part 2A nearly resulted in a deficiency letter, highlighting the critical need for increased accuracy and automation. The average time spent preparing these reports was approximately 40 hours per quarter.
• Personal Trading Monitoring: The firm struggled to effectively monitor the personal trading activities of its employees. Manually tracking employee brokerage accounts and pre-clearing trades was inefficient and prone to errors. A previous internal review uncovered a minor violation of the firm's code of ethics, which, though resolved internally, highlighted the need for a more robust monitoring system.
• Policy Updates and Training: Communicating policy updates and tracking employee training completion was a challenge. Managing training sessions, quizzes, and attestations using spreadsheets and email resulted in poor visibility and difficulty in demonstrating compliance to regulators. The administrative overhead for managing employee training was estimated at $5,000 per year.

These challenges collectively impacted Montgomery Retirement Solutions' profitability, increased their risk of regulatory violations, and diverted valuable resources from client service and business development. The manual nature of their compliance processes also hindered their ability to scale their operations and attract new clients.

The Approach

Golden Door Asset conducted a thorough assessment of Montgomery Retirement Solutions' existing compliance infrastructure and identified key areas for improvement. Our strategic approach involved:

1. Needs Analysis: We started by conducting a detailed interview process with the CCO and compliance team to understand their specific challenges, pain points, and compliance priorities. We reviewed their existing policies, procedures, and documentation to identify gaps and areas for improvement. This included analyzing their current risk assessment methodology, audit trail processes, regulatory reporting procedures, and employee trading monitoring practices.

2. Technology Evaluation: Based on the needs analysis, we evaluated several leading compliance software solutions, focusing on features such as automated risk assessments, audit trail generation, regulatory reporting capabilities, employee trading monitoring, and policy management. We considered factors such as ease of use, integration with existing systems, scalability, and cost-effectiveness. We narrowed the selection to three potential vendors based on their ability to meet Montgomery Retirement Solutions' specific needs and budget.

3. Vendor Selection and Implementation: After careful consideration, Montgomery Retirement Solutions selected a cloud-based compliance management system that offered a comprehensive suite of features and a user-friendly interface. Golden Door Asset assisted with the implementation process, which included data migration, system configuration, and user training. We worked closely with the vendor and Montgomery Retirement Solutions' IT team to ensure a smooth and seamless transition.

4. Process Optimization: We worked with the compliance team to optimize their compliance processes and workflows to leverage the new system's capabilities. This included developing automated workflows for risk assessments, audit trail generation, regulatory reporting, and employee trading monitoring. We also helped them to update their policies and procedures to reflect the new system's functionalities.

5. Training and Support: We provided comprehensive training to the compliance team and other employees on how to use the new system effectively. We also provided ongoing support to address any questions or issues that arose during the implementation and ongoing use of the system. This included developing training materials, conducting webinars, and providing on-site support as needed.

The key to our approach was a focus on understanding Montgomery Retirement Solutions' unique needs and tailoring the technology solution to their specific requirements. We also emphasized the importance of process optimization and training to ensure that the new system was used effectively.

Technical Implementation

The implemented compliance management system featured:

• Automated Audit Trails: The system automatically tracks all user activity, including access to client data, trade orders, and advisory fee calculations. All changes to data are automatically logged with timestamps and user identification, creating a comprehensive and immutable audit trail. This eliminates the need for manual documentation and reduces the risk of errors. This system uses AES-256 encryption for all data at rest.
• Risk Assessment Tools: The system provides tools for conducting risk assessments based on industry best practices and regulatory guidelines. The system automatically collects data from various sources, including client accounts, trading systems, and regulatory databases, to generate risk scores and identify potential areas of concern. It also allows for the customization of risk factors and scoring methodologies to reflect Montgomery Retirement Solutions' specific business model and risk tolerance. It supports Monte Carlo simulations to project potential losses under various market scenarios.
• Regulatory Reporting Capabilities: The system automates the preparation of regulatory reports such as Form ADV, Form PF, and Form CRS. It automatically extracts data from the system and populates the required fields, reducing the risk of errors and saving time. It also provides tools for validating the data and ensuring compliance with regulatory requirements. The system has built-in logic to flag potential discrepancies and compliance issues before reports are filed.
• Employee Trading Monitoring: The system integrates with employee brokerage accounts to monitor their personal trading activities. It automatically flags any potential conflicts of interest, such as trading in securities that are also held in client accounts. It also allows for the pre-clearance of trades and the tracking of employee compliance with the firm's code of ethics.
• Policy Management: The system provides a central repository for all of Montgomery Retirement Solutions' policies and procedures. It allows for the easy updating and distribution of policies and provides tools for tracking employee acknowledgement of policies. The system also includes a policy change management workflow to ensure policies are reviewed and approved on a regular basis.
• Integration with CRM: The system integrates with Montgomery Retirement Solutions' existing CRM system (Salesforce), allowing for seamless data sharing and workflow automation. This integration allows for a single view of client data, including compliance-related information.

The entire solution was deployed on a SOC 2 compliant cloud infrastructure, ensuring data security and availability. Regular penetration testing is conducted to proactively identify and address potential vulnerabilities.

Results & ROI

The implementation of the compliance software solution resulted in significant improvements in Montgomery Retirement Solutions' compliance operations and a substantial return on investment:

• Reduced Compliance Costs by 20%: The automation of key compliance tasks reduced the time spent on manual processes, resulting in a 20% reduction in annual compliance costs. This translated to a savings of $25,000 per year.
• Reduced Risk Assessment Time by 75%: The automated risk assessment tools reduced the time spent on conducting annual risk assessments by 75%, freeing up valuable time for the CCO and compliance team. This allowed them to focus on more strategic initiatives, such as developing new compliance policies and procedures.
• Improved Audit Trail Accuracy: The automated audit trail generation ensured that all client interactions, trade orders, and advisory fee calculations were accurately documented and easily accessible. This reduced the risk of errors and made it easier to respond to regulatory inquiries. The error rate in audit trails decreased from 5% to nearly 0%.
• Faster Regulatory Reporting: The automated regulatory reporting capabilities reduced the time spent on preparing reports such as Form ADV and Form PF by 50%, allowing the compliance team to focus on other priorities. This also reduced the risk of errors and improved the accuracy of the reports.
• Enhanced Employee Trading Monitoring: The employee trading monitoring system significantly improved the firm's ability to detect and prevent potential conflicts of interest. No instances of employee trading violations were detected after implementation.
• Improved Compliance Officer Efficiency: The CCO reported a 40% increase in their efficiency, allowing them to focus on strategic planning and oversight rather than day-to-day administrative tasks.

Beyond the quantifiable benefits, Montgomery Retirement Solutions also experienced improved morale among the compliance team and a greater sense of confidence in their ability to meet regulatory requirements. The firm is now better positioned to scale its operations and attract new clients without being hampered by compliance constraints.

Key Takeaways

• Embrace Technology: Automation is no longer a luxury, but a necessity for RIAs seeking to manage growing compliance burdens effectively.
• Prioritize Integration: Choose compliance solutions that seamlessly integrate with existing systems to maximize efficiency and data accuracy.
• Invest in Training: Ensure that employees are properly trained on the new system to realize its full potential.
• Conduct Regular Audits: Even with automation, regular internal audits are essential to identify and address any compliance gaps.
• Focus on Scalability: Select a compliance solution that can scale with your business as you grow.

About Golden Door Asset

Golden Door Asset builds AI-powered intelligence tools for RIAs. Our platform helps advisors streamline operations, enhance compliance, and deliver superior client outcomes. Visit our tools to see how we can help your practice.