Are you an independent broker-dealer struggling to keep up with the complications of ever-changing securities regulations? The amount of paperwork, alone, that must be tracked for investment compliance reasons can sometimes become a nightmare. Especially for a smaller firm with limited human resources, it can start to feel like a heavy anchor, limiting any potential growth.
However, there is an affordable, potentially profitable solution: Investing in an outsourced Chief Investment Officer (CIO) can yield proactive solutions to help you stay one step ahead of regulatory changes. If you’re tired of running to catch up, please read on.
This article discusses the following:
- Regulatory changes aren’t likely to end soon
- Those ugly r-words: retention & recession
- Could delegation help you get traction?
- Why OCIO providers can be lifesavers
Regulatory Changes Aren’t Likely To End Soon
The financial industry is no stranger to regulatory change. In fact, we’ve seen a steady stream of new regulations over the past few years. It’s certainly reasonable to expect that we’ll continue seeing new changes as governments and regulators look for ways to protect investors. Some of the results may be increasingly complex, as well.
So, it’s never been more important for independent broker-dealers to understand how regulatory changes can affect their businesses. While most rules are designed to ensure investor safety, they sometimes come with significant penalties for improper filing, including fines, suspension of trading privileges, or even criminal prosecution.
It would be nice if we could tell the Securities and Exchange Commission, “I’d have paid closer attention if I hadn’t been so focused on doing my job—and nurturing client relationships.” However, the SEC doesn’t deal in shoulder pats or do-overs. At the end of the day, it’s comply 100% with regard to every investment or cry.
Those Ugly R-Words: Retention & Recession
Okay—technically, “regulation” is also an r-word. Nevertheless, let’s talk about its cousin, “retention” and its ugly cousin, “recession:” It’s not going to shock anyone when I say that retention is our firms’ lifeblood. There is no functional substitute for paying clients. Our own financial well-being is tightly woven into how we perceive our own.
This makes a degree of hand-holding integral to almost any job in the financial industry. Reassurance tends to encourage continuing client trust and loyalty. It also says non-verbally that they remain people to us; they’re not becoming back-burner-ed, forgettable numbers. These are the building blocks of retention—and we can’t afford to neglect them, even when free work hours are rarer than sidewalk diamonds.
Nevertheless, now that a recession seems inevitable, people like our very best clients are worried (or tempted to be). The days of a brief, you’ll-be-fine nod and wink are over. If we don’t make time for additional, consistent hand-holding, in some cases, they’ll start to feel neglected or even forgotten.
It can be a head-scratcher and potential headache inducer: How do you pull enough hours out of a magic top hat to keep your clients reassured and emotionally on board? Cloning yourself might be legal where you are, but the best publicly-available tech still takes years for the necessary growth (even if the whole idea wasn’t sketchy).
Could Delegation Help You Get Traction?
Seriously, there’s only one obvious solution: You have to delegate your investment-related compliance work. It may not be humanly possible to put in your best planning, asset management, and relationship-building daily—and keep tabs on every new requirement from the SEC or FINRA. This has been the case at times, even before the economy turned sour.
Now that we’re in another year of the bear, economically (with reassurance becoming even more crucial), it’s probably only going to get crazier. The road may be forking for some independent broker-dealers between delegating what they can and going under. Hopefully, that’s an overdramatic picture of what lies ahead, but who really knows?
You need to start thinking, right now, about what you want to offload and to whom you want to assign those tasks. Unless you’re prepared to start farming out clients to larger firms in order to free up time, it may be your only viable option. Meanwhile, you also need to consider how you’ll pay another employee.
Few independent firms have the financial resources necessary (and ski-mask approaches never end well). This can make covering the salary, benefits, bonuses, and so on for someone well-qualified feel just as headache-inducing as the ever-changing compliance requirements for investing. However, there is a budget-friendlier alternative.
Why OCIO Providers Can Be Lifesavers
A fiduciary outsourced chief investment officer (OCIO) can help you even the odds. The right one can bring both experience and accreditation onto your team without costing a fortune in the process. This is because he or she works remotely; interfacing with you (and with clients, if you choose) online. They’re available every business day, but you may only have to pay a set monthly fee.
You can list their bio on your Our-Team page. In some cases, the OCIO model can be an almost instant prestige boost if, for example, you land one who’s a Chartered Financial Analyst®. At the same time, you don’t have to worry about providing health insurance or even a parking spot.
I say this a lot, but it really can be the best of both worlds: You can have an experienced executive helping keep your firm compliant and your documentation solid without the typically-significant additional costs. You’re going to need more time to reassure clients when the recession hits, but an OCIO can bring aboard much more than delegation options.
Opting to have this executive meet with clients upon request constitutes providing a premium service. So, if you choose to, you may want to consider optimizing your fees. You could consider adjusting your AUM, as well: If your outsourced CIO is a CFA®, prospective high-net-worth (and possibly, even ultra-high-net-worth) clients may take note.
Market volatility had many middle-income investors considering leaving their current advisor, well before a recession looked certain. Now, it only stands to reason that some of the affluent may be having similar thoughts. Cornerstone Portfolio Research has the experience to help you keep your investing compliant and free up your time for landing new clients.
We’re also available for registered investment advisors (RIAs). Contact us to learn more.