Delicate bedfellows

By Steve Garai | January 15, 2007 | Last updated on January 15, 2007
3 min read

(January 2007) After recent scandals you can hardly fault the industry in its quest for higher levels of compliant behaviour. Compliance, of course, is a large area involving the back, middle, and front offices, and the financial services industry is fast-tracking development on all fronts.

This can be costly to maintain because it requires additional overhead, and advisors (front-office) typically don’t like to shuffle paper and may hesitate to ask questions that they feel are a “put-off” to their clients.

By now though, most advisors are sensitized enough about the importance of this operation and both compliance departments and advisors work more closely as a team, with fewer traditional tensions between them. Along with this, increasingly sophisticated platform technologies are available to provide and apply more efficient compliance filters and reduce costs.

As with all things in life, however, a balance must be maintained if we are not to stifle the very lifeblood of the business — an advisor’s ability to make a living and grow his/her book of business.

All ecosystems on earth exist only because of a fine balance maintained between many competing players. Service providers need to be careful that in our effort to reach “bulletproof” status in our compliance, we do not drive away the people we rely on to distribute the goods and services.

Anyone who has numerous passwords to juggle will immediately understand how important it is to find a balance between security and user-friendliness.

For example, before my trip to Africa, I tried the password reset function at my bank’s online portal to make sure I wouldn’t have an unpleasant surprise while away from home. I discovered that the system wanted to know my account number in addition to the answers to my three preset questions. In the end, without the bank account number, access to my account would be disallowed, even if I answered the questions successfully. The telephone representative explained to me that I could call them collect internationally and this wouldn’t be a problem. In a country though where telecommunications is still in its infancy this could very well be a problem.

This compliant behaviour on the part of the bank should be lauded, but in its effort to keep my bank account safe from intruders, their additional screens severely complicated access to my accounts.

The point is producers may be driven away if their compliance arm does not support them adequately. At the same time the advisor must also ensure they protect themselves and the dealer with whom they collaborate.

This interplay between competing forces has yielded some interesting partnerships — compliance has become a business opportunity for smart dealers who recognize the need to satisfy compliance, the advisor and the client. Using compliance-effective, user-friendly technologies attracts and retains producers, and stimulates competition, raising standards for all concerned.

Certain systems lend themselves better to the task than others. Software rooted in Asset Allocation (Modern Portfolio Theory) facilitates compliance by addressing investor profiles and allocating an appropriate asset mix and class accordingly. It is easy to understand by both clients and their advisors, reducing the chance of a misunderstanding, and other compliance-related difficulties.

Our experience shows that more players in the industry realize that there are significant advantages to asset allocation business processes. The advisor develops more client relationships, the clients are happier because they feel they’ve had a thorough portfolio review and the compliance department is happy because the right investments have been recommended to the right investor profile.

The right combination of technologies emphasizing compliance, linked with the advisor’s business development imperative, and client satisfaction priorities, yields an ideal combination.

Fund Wrap Filter, Asset Allocation Filter — More hands. More hands on. Check out our two new and exclusive tools to assist you select and build the right portfolio for your clients. These two free tools, available now at, filter, sort and streamline asset allocation and fund wrap programs.

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Steve Garai is a business development consultant for the Asset Allocation Analyst — software for financial advisors, powered by EquiSoft. For more information, visit

Steve Garai