The Biggest Financial Advisor Compliance Issues

Understanding the Common Headaches Advisors Face Today

Today, financial advisors find themselves faced with the task of navigating an increasingly complex landscape of regulatory compliance. The consequences that come from choosing to ignore compliance rules are severe and handed down from organizations such as FINRA, SEC, DOL, and state governments. Even for advisors who take care to abide by compliance regulations, there’s always the chance of inadvertently breaking the rules.

Below are some of the biggest compliance issues that financial advisors face today – ones that you should keep on your radar as you build your business.

#1. Digital Theft and Cybersecurity

One of the most significant financial advisor compliance matters centers around cybersecurity and ID theft. Experts in cybersecurity maintain that most advisory firms are using security walls that are still relatively weak and wouldn’t hold up against expert hackers. Although it may cost more, it may behoove your firm to spend extra money to ensure you’re getting the adequate cybersecurity resources you need to properly protect your client data. It’s important to remember that cybersecurity isn’t just about the equipment and programs, but also about training administrative assistants, staff members, and clients on proper cybersecurity measures such as guardianship of passwords and other login information.

#2. Not Enough Time

Dealing with financial advisor compliance issues takes a lot of time and money. Despite the fact that complaint rules demand strict obedience, many firms lack a robust compliance department due to the lack of appropriate funding to attract and retain competent personnel. Unfortunately, recent legislation has not helped to make any of this easier. Today’s digital marketplace has made compliance matters even more complicated, requiring more time and attention to be spent on compliance issues related to communications, advertising, and blog posting. Ensuring that everything has been submitted to compliance and approved before being published publicly is a good way to ensure that your firm is not breaking any rules, even if unknowingly.

#3. Valuation Methods

Typically, compliance departments use valuation methods and appraisal procedures that lead them to reject any investments or assets that are not publicly traded. This is because they’re only qualified to view the asset from a regulatory perspective, causing them to discount the actual value of the asset. To deal with this issue, some firms are working on developing strict back-office procedures.

#4. Marketing

Over the past few decades, there has been an abundance of new advertising regulations due to public investment scandals that have made headlines. Depending on what your firm offers, there are specific advertising rules that your business is bound by. For instance, many times when you’re marketing financial products or services you must be sure to include disclaimers and be sure that your ads are honest and ethical.

#5. Accounting for Assets

It’s critical that advisors implement strict policies on how they handle and store assets, including cash, checks, security certificates, and any corresponding account paperwork. It can also help to work with your clients and educate them on ways that they can safeguard these assets while they’re in their possession. This is critically important for your clients because those who hold their securities in certificate form have no recourse if those certificates are lost or stolen.

#6. Foreign Tax Compliance

Foreign tax compliance may be one of the more difficult hurdles for advisors to clear, especially if they have particularly wealthy clients. Often, wealthy clients will look to foreign and offshore investments and business holdings as a way to reduce their tax bills. And while this can be successful, it can create some difficulty when it comes time to file tax returns.

In 2010, The Foreign Account Tax Compliance Act (FATCA) was passed with the goal of cracking down on investors who look outside U.S. borders for tax-free returns on their capital. This can make it incredibly complicated to stay compliant in this area because it involves receiving financial data from foreign sources which may be difficult to verify.

As you consider financial advisor compliance matters, you should expect to spend a fair amount of time dealing with foreign tax compliance issues and educating your clients on potential tax ramifications if they own global holdings.

Concluding Thoughts on Financial Advisor Compliance Issues

Unfortunately, compliance issues are an aspect of the financial industry that’s inescapable. And, successfully following all of the compliance rules and regulations governing financial planning is much easier said than done. However, it’s imperative that your firm spends sufficient funds and time on compliance to ensure that you don’t get into trouble with your clients or with regulators.

At TriCapital Advisors, we provide the financial advisor compliance and marketing support advisors need so that you can remain focused on your clients and their needs. If you’d like to start a conversation about becoming a TriCapital Advisor, please contact us today.

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