How Fintech Can Help Drive Down Compliance Costs in Wealth Management


Last Updated on May 27, 2021 by Connor Prendergast

There’s no disputing it anymore. The use of online technology for practice management has changed the landscape of financial services. Virtual advisors are on the rise. Existing wealth management firms are scaling faster. Client service has improved.

With great power comes great responsibility. The wide-spread use of data technology has resulted in increased regulation. Compliance costs have gone up. According to Globalscape’s Ponemon Report, they grew from $16 million to $30.9 million between 2011 and 2017.

Keeping track of all the financial regulation changes in the past few years has overwhelmed human compliance departments. One solution to that is to add more bodies, but this is 2021. Fintech compliance apps, aka Regtech, are bringing automation to the compliance space.    

Regulations on Transparency and Data Protection

Surprisingly, there isn’t a federal statute that governs data protection. The Federal Trade Commission (FTC) can bring enforcement actions for deceptive practices, but data protection is handled by the states. For national firms, that’s fifty sets of regulations to understand. 

Stop and think about this for a moment. Without yet mentioning SEC, FINRA or the DOL rule, compliance officers are already forced to monitor business activities to prevent FTC enforcement actions and ensure compliance with state and local data protection laws.

It’s a massive burden to carry, and the rules change each time a new administration comes in, whether on a state or federal level. The new SEC chair, Gary Gensler, is already pushing for new rules on SPACs and wants to regulate digital assets. That’s more work for compliance.

Last, but not least, there’s the DOL Rule. It’s been around for a while, but there’s a new component this year expanding fiduciary duties when handling retirement plans. Enforcement is scheduled to begin December 2021, so there’s not much time left to make changes.  

Client Reporting and Communications Compliance

Reporting of annual performance (for RIAs) and disclosure of fees and commissions is required. How you do it is another story. That’s where fintech apps can start bringing your compliance costs down. Using reporting software that automates the creation and delivery of these reports, or better yet, brings it all online can substantially reduce the staff time and costs associated with reporting.

Another compliance headache is advisor to client communication. There are times when a text message seems like the quick solution to a simple question, but is it compliant? We’ve been trained not to do it. But a next generation client mobile app with built in messaging that makes the messages secure and archived by default can eliminate most concerns.

Expand the thought process and think about the daily tasks that must be compliance approved before you can complete them. Automated reporting only requires one review. Every report will follow the same guidelines after that. That should cut back on compliance spending.

Financial technology eliminates the need to examine each task and instead gives you one “system” that needs compliance review. Setting parameters to satisfy regulatory requirements is part of the set-up process. Everything else is automated after that.

Adding Regtech Software to Enhance Compliance Reporting

As regulatory complexity increases, many larger advisory firms are adding Regtech apps to their software stack. This doesn’t just help existing compliance officers. It’s also a recruitment attraction for risk officers, general counsel, and change managers.      

Advisors doing business in the European Union can attest to the value of Regtech. Since the adoption of the General Data Protection Regulation (GDPR) in 2016, they’ve had to add additional data protection guidelines, which compliance needs to keep track of.

In certain situations, the existence of a human compliance officer is not required. I’ve seen it with a lot of independent firms (RIAs) who prefer to use compliance “consultants” instead of hiring another full-time employee. That might be more cost-effective, but it’s dangerous.

Adding Regtech that monitors changes in state and federal regulations can save a firm the cost of a full-time compliance officer and eliminate the need for a compliance consultant. There may even be a built-in compliance “help-desk” if you want to speak with a human.

How Blueleaf can Cut Compliance Costs

One of the functions built into Blueleaf early on was the ability to run reports specifically to answer the questions of any auditors who come to visit you. This can include communication history, client aum, and billing information.

Those who have been through an audit understand how important it is to have this information readily available. Blueleaf also has our own compliance people who monitor our platform and review new features before we launch them, ensuring your reporting will be compliant.

The cost-saving component of this is automation. Tasks that we’re able to quickly perform for you or that you can execute yourself can save thousands of dollars per year in potential compliance fees. When put into context, that might even offset your subscription costs.


  • Kevin D. Flynn

    Kevin D. Flynn is a former Head Coach at Blueleaf and founder of Flynn Consulting, LLC, a business and financial coaching service for startups and small business owners.

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Kevin D. Flynn is a former Head Coach at Blueleaf and founder of Flynn Consulting, LLC, a business and financial coaching service for startups and small business owners.
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