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From Roadblock To Safety Net: How Financial Advisors Can Make Compliance Work for Them

It’s no secret, adhering to regulatory requirements has always been a challenge. Financial institutions typically need dedicated compliance officers just to navigate the labyrinth. And with the ever-increasing popularity of digital marketing, the Virtual Financial Advisor™ faces even more complex compliance issues.

A big part of compliance is tied to the issue of transparency and your interests as a fiduciary. You can stay compliant by keeping your business model simple and by creating the proper disclosures. Don’t forget to keep records and subscribe to regulatory body updates.

As frustrating as it can be, compliance is a necessary struggle. To quote former U.S. Deputy Attorney General Paul McNulty, “If you think compliance is expensive, try non-compliance.” 

Besides, following rules and regulations can save you both time and money in the long run. Consequently, this brings up questions on the relevant rules and regulations and keeping pace with a dynamic environment like the digital space. 

What is the point of compliance?

Compliance ensures what you’re doing is legal, prevents negative exposure, retains talented people, and improves the bottom line. But more than improving profits, compliance safeguards your fiduciary duty to your clients and prospects. 

Fiduciary, in a word, is trust. Clients and prospects trust you’ll recommend what’s right for them, and compliance protects this responsibility. 

Common struggles financial advisors face

Although fiduciaries operate in a dynamic environment, some issues do persist. These recurring compliance issues include conflicting interests between advisor and client, determining private valuations, and cybersecurity. A consequence of the multitude of new and persistent issues is the time-suck following efforts to stay compliant.

Conflict of interests

Revenue-sharing arrangements, while entirely legal and fair, are a common issue faced by financial advisors. Some products and services simply pay more than others, and there is an incentive for the advisor to recommend those. But these recommendations may or may not be in the best interests of the beneficiary. 

Conflicting interests can be tricky because, occasionally, the right product for the client is also the product that brings in the most commissions. This is an issue that advisors with broker-dealer relationships constantly struggle with. 

Private valuations

To reduce exposures through risk management, we need ways to quantify liabilities. At the same time, advisors who deal with non-listed assets or investments also need ways to determine value — also known as private valuations. 

Unfortunately, the valuation methods and appraisal procedures advisors use may not pass the compliance officer’s judgment, which is strictly from a regulatory perspective rather than fair valuation. That is, compliance might favor conservative assumptions when estimating the values of assets and liabilities. 

Internet safeguards

Cybersecurity is an area that silently eats up a company’s resources. There is a temptation to hire cheap, but online theft can be extremely costly, so you’re better off getting top-notch contractors or personnel. They should be worthwhile investments. 

Simple things like SSL Certificates act as deterrents to hackers. But security walls go beyond that. Most cybersecurity experts believe there are many more steps advisory firms can take to defend against digital fraud on client assets and personal information. 


All of these compliance issues necessitate more time and money from the firm. You’ll need to keep records, stay up-to-date with the latest regulatory deployments, go back-and-forth with the compliance team on marketing paraphernalia, and so on. That is, of course, time away from other productive activities. 

While the digital marketplace has been a platform of increasing opportunities, it is also a domain that’s caused even more confusion and complexity in compliance for the Virtual Financial Advisor™.

Adding the challenges of a digital marketplace

Advances in technology have also allowed improvements in marketing. To supplement traditional advertising techniques, more and more companies now rely on content marketing in the form of blog posts and social media content. 

The push and pull between marketing and compliance

There is a natural struggle between marketing and compliance. Marketing and business development want to churn out more blog posts, YouTube videos, and LinkedIn campaigns. On the other hand, compliance officers look to limit exposure. How does the Virtual Financial Advisor™ strike a balance? 

The truth is, compliance officers themselves struggle with what’s legal or not. While they’re knowledgeable and good at what they do, the dynamic, constantly evolving nature of the field means all they can really do is err on the safe side. Now and then, what’s safe can be detrimental to the business. 

At the same time, marketing and advertising should be truthful and ethical anyway. This is especially difficult for social media, as it’s easier to post seemingly harmless messages. 

Digital marketing

Some financial institutions see the risks of social media and give up on the platform altogether. This is a huge mistake. If you’re not actively cranking out content, then you’re losing out on a referral source that consistently brings in new business. 

The largest source of online referrals is Google’s search engine. Most SEO — search engine optimization — techniques are directly tied to content creation. In fact, creating content is one of the top keys to ranking on Google.

Influencers are also gaining ground with larger marketing budget allocations. This makes sense because people trust people. “Joe’s” recommendations carries more weight than an ad that’s clearly paid for. 

Tips to stay compliant 

As a Virtual Financial Advisor™, with a growing reliance on digital marketing techniques, you need a way to get the compliance department on the same side. How do you do that while navigating the inherent complexities of compliance? Here are several tips to stay the course.

1. Simplify the business model

A more straightforward business model is easier for everyone — for you, for compliance, and for the client or prospects. The compliance department understands it enough to be confident about their decisions. Clients objectively decide on a course of action. And you spend less time on compliance issues and more time with your clients. 

2. Disclose everything 

Most compliance issues are due to the institution’s failure to disclose conflicts of interest. 

It can be challenging to know if an arrangement creates conflict, but identification is the first step. Once you’ve identified a point that may create conflicts of interest, the next step is to mitigate the conflict. Is it possible to move away from a revenue-sharing arrangement? What are your alternatives?

If it isn’t possible to mitigate, then disclose the conflict of interest to your clients. Revenue-sharing arrangements are fine as long as the client knows about them. It helps them paint a clearer picture, which then allows them to decide objectively. If you’re getting compensation for endorsing 3rd party products or services, then your clients need to know.

3. Avoid all-encompassing statements 

The popularity of digital marketing platforms makes it easier to publish generic recommendations in hopes of casting a wide net. Never do this. 

Sweeping recommendations are outright dicey, because different people will have varying needs and face diverse circumstances. Don’t forget that everyone can read what you advertise online. Avoid all-encompassing recommendations and always include clarifying language and caveats to cushion your statements from sounding too promissory. Simple words like “some” and “can” may save you a lot of time and trouble.

4. Stay up to date with common issues

If it’s an issue with your firm, then there’s a high probability that other institutions have faced the same problems, too. In fact, the SEC’s Office of Compliance Inspections and Examinations, or OCIE, regularly issues risk alerts for financial advisors. These reports highlight the most common compliance issues recognized by the SEC. 

Take the time to read up on industry tendencies and risk alerts by subscribing to this report. You should prevent the same deficiencies from showing up in your practice. 

5. Keep records

Without a doubt, you should always keep records to prepare for the inevitable regulatory checks. Include backup data on social media posts, what was published on your website, and all communications exchanged with the client. 

This is definitely a tedious process, but probably not as complicated as some might think. Look for automated archiving tools to store data, and you’re set. Oh, and archiving years of data isn’t as expensive as it once was. 

Compliance for the Virtual Financial Advisor™

The compliance team wants to be on your side. They wish for you to succeed. But you’ll have to give them compelling reasons to back you up. 

By simplifying your business model and creating complete disclosures of conflicting interests, among others, you significantly reduce the complexities of compliance. Although digital marketing has made conformity more complicated, it’s also offered an opportunity for financial advisors to grow their practices. 

I hope these tips help. In the end, it’s about providing the best service you can and being truthful and ethical about the way you do your business. When you frame it like that, compliance becomes more of a safety net and less of a roadblock. 

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.