There’s lots of talk about how automation can help advisors, but what about compliance officers? The answer shouldn't surprise you: automation will change their job. In the near future, compliance officers will depend on compliant systems rather than taking a portfolio by portfolio approach.
With automation, every portfolio will be part of what we like to call a “compliant loop” — a closed system that virtually guarantees every portfolio is managed the way it is supposed to be. The loop starts with the investor profile, which automatically feeds into a risk-appropriate asset allocation. With the right automation tools, extensive customization can be permitted or even encouraged — but only within firm-approved bounds (or permitted client-required exceptions).
Compliant-focused automation can prevent portfolios from falling “off the rails.” With automated rebalancing, portfolios are reviewed daily. Trades are generated as needed to ensure that they are faithful to the firm’s tactical and strategic decisions — and to each portfolio’s unique customization parameters.
This shifts the focus of compliance to validating and enforcing policies and procedures — not reviewing individual portfolios and trades. Compliance officers won’t have to worry about individual portfolios. Instead, they can concentrate on the rules themselves — what are acceptable bounds for customized asset allocation? What are acceptable substitute products? How are investor profiles mapped to a specific risk category?
We project that automation can be as helpful for compliance officers as it is for advisors. Compliance officers will spend less time on minutia; thus, more time spent focusing on the big picture. And that, we think, is good for everyone — compliance officers, advisors and clients alike.
For more on this topic, check out Can Compliance be Automated?
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