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The introduction of client-focused reforms in Canada and regulation best interest in the U.S. represents what many industry experts consider the most significant wealth reform in decades. With stiff regulatory headwinds growing, many wealth firms take one of three approaches to compliance: implement new manual policies and procedures, leverage regtech solutions or take a wait-and-see approach. In recent market surveys we have conducted, the distribution of firms across these three approaches is 45% manual, 40% technology and 15% pushing the issue to the back burner.

Factors that drive firms’ compliance responses include cost, competing corporate priorities, brand/reputation risk and advisor support considerations. The uncertainties associated with each of these factors create more complexity for firms balancing risk and opportunity.

One of the foundational elements of the new regulations is know your product (KYP). Enhanced KYP obligations focus on client suitability and the analysis of reasonably available product alternatives, ensuring that recommended investment products are evaluated against peer offerings across the three dimensions of cost, risk and return. Regulators are looking for evidence that this analysis has been completed and documented.

In a blog article, we looked at the practical reality of performing this type of detailed analysis manually, which would require an advisor to look at one million data points daily — clearly an impossible human task. A similar analysis leveraging KYP technology is completed in less than five minutes. This is an example of a regulatory hurdle that cannot be cleared without leading technology.

These regulations have a common goal: to ensure that the industry operates with the investor’s best interest as a guiding priority. Our team recently analyzed whether KYP technology actually delivers on this promise. One of our clients implemented KYP technology two years ago and we have tracked investment product recommendations over that period. The results are exciting for all stakeholders interested in investor outcomes.

Over the analysis period, product investment returns increased by 15%, product risk decreased by 16% and product cost decreased by 35%, which represents the trifecta of regulatory expectations. Our peer rating metric, which translates the three dimensions of cost, risk and return into one product rating number, increased 29% over this period.

While there is little doubt that updating policies and procedures is an important part of the regulatory solution, many wealth leaders are concluding that this strategy alone is insufficient. Firms that take the wait-and-see approach are assuming regulatory and reputational risk during a time when regulators are increasing their enforcement plans.

Technology is increasingly leveraged by wealth leaders to address multiple shifts in the industry, including compliance, demographic changes driven by intergenerational wealth transfer and the availability of advanced analytics and market data.

Future wealth leaders will be those that balance procedural changes with technology solutions to ensure that their advisors will elevate strategy, improve performance and meet evolving “best interest” expectations. Ultimately, this will lead to better financial decisions for the investor, the advisor and the wealth firm.

David Reeve is CEO of InvestorCOM Inc., a compliance technology provider to the wealth management industry.