In times of financial crisis, sometimes the only tool available to governments is more regulation. They want citizens to see them acting quickly, but speed often leads to unintended consequences.

And, more laws means rising compliance costs. Consider these two options for reducing them:

    1. Trim the fat

      Find out what parts of your practice are unprofitable by using full-cost accounting—that means including compliance costs, which are often overlooked.

      Performing a cost-benefit analysis can reveal activities that can be eliminated or outsourced. And, reducing the range of products you offer will remove the need to be aware of and comply with compliance and other requirements that are product-specific.

      For example, the know-your-product obligation makes it inefficient—and perhaps dangerous—to sell units in a limited partnership to only one or two clients.

      The time you will need to devote to reading the offering memorandums, conducting additional research, and determining the risk level is usually not worth the compensation.

      Another time-consuming product is provincial savings bonds. You have to fill out a lot of paperwork in exchange for minimal return.

      To properly account for seasonal changes in demand, market volatility and operational risk, make sure you spread the analysis over at least one full business cycle.

      You’ll also want to look at how dropping a particular product or service will affect your long-term strategic goals, your client relationships, and cash flow.

      Reducing the number of areas for which you’re responsible will allow you to devote resources to the most profitable parts of your business and eliminate the risks that were associated with those abandoned segments. As part of the bargain, you’ll decrease compliance costs.

You have to sell every product because your competitors do

  1. Automate

    Well-designed and properly tailored compliance software provides a central control mechanism for both monitoring and reporting, so increase your reliance on those systems.

    Audits by regulators frequently find that documentation is out of date or has never been signed by the client and returned for safekeeping in the client’s file. The responsibility to traffic these documents is often delegated to an assistant. CRM software can monitor the documentation in files so corrective steps can be taken when necessary, including automated messages to clients and appropriate parties.

    This type of software can also be used for storing notes of all conversations relating to a client’s account and include flags that identify different types of conversations, such as trade instructions, mandated disclosures, and parties to the conversations.

    Software can also monitor account composition to ensure they remain within set parameters and that portfolios that are no longer suitable trigger an appropriate response, such as an account freeze.

    The systems also can identify unusual trading or redemption patterns so you can follow-up. The bonus: you remain compliant and improve client contact.

$1.17 billion the cost of complying with 11 key regulations for small—and medium-sized businesses in 2008.

Source: Statistics Canada

Richard E. Austin is counsel at Borden Ladner Gervais LLP in Toronto.

Originally published in Advisor's Edge