Financial advisors often find themselves wearing many hats throughout the course of a single workweek. Depending on their specific role, they could be required to devise savings plans for retirement or other big life goals, diligently investigate and research the investment options available, maintain a constant awareness of trends and news that could affect their clients’ investments, and deliver advise customized for each client’s specific situation.
It can be a considerable burden being entrusted with someone’s financial future. And on top of these many tasks, an independent advisor must also find time to look out after their business to ensure they can continue to perform their important work. With such full schedules, it’s no wonder that so many advisors have difficulty navigating the everchanging and hazardous maze of compliance. Unfortunately, this causes many advisors to run afoul of the rules, facing damaging fines and penalties.
This post focuses on some of the main reasons why maintaining compliance is so difficult for financial advisors.
The top reason and one of the hardest parts about maintaining compliance is that it’s a moving target, with constant changes and additions being made to the rules and regulations. The past few years have seen several new rules being introduced to the industry, in the form of Regulation Best Interest in 2020 and the new Prohibitive Transaction Investment guidelines taking full effect in July 2022. Each rule must be fully understood and carefully followed to the letter to avoid infringement. And doing so properly takes time and resources, which many independent advisors do not have in abundance.
With the digital age comes a new era of threats from cyberattacks stealing clients’ personal information and assets. With the passing of every year, these attacks become more sophisticated and harder to detect and prevent. Many small businesses without the latest cybersecurity measures and preventive training can fall victim to digital intrusions.
Advertising and Marketing
Like all other businesses, independent advisors will often turn to marketing communications and advertising to secure leads for prospective new clients in the hopes of building their books of business. But when doing so, extreme caution must be exercised. Regulators have very specific rules that govern the content of these messages. Misleading statements or discussions of performance results, among others, are strictly forbidden. And determining the messages that are permissible versus those that will draw a violation can be incredibly difficult. Like the other rules, these guidelines are also subject to updates and changes. And they often do, as evidenced by the SEC’s recently amended marketing rule, which became effective in May 2021.
How We Help
Being independent can be incredibly rewarding for a financial advisor, allowing them the freedom to work as they see fit, recommend the products and services that they think are best for their clients, and often earn a larger net payout than they would working for a big firm. But there is a veritable minefield of danger from rules violations, which without proper guidance and support, can be hard to cross safely.
L.M. Kohn has been helping advisors maintain compliance for over 30 years, without interfering with the rewards that come from being independent. We have an entire department dedicated to understanding every rule and regulation, and we take the burden off our reps by monitoring their business practices, client and marketing communications, and daily trades for any potential dangers. We conduct regular training sessions to keep our reps informed, and are available around the clock as a constant resource if our reps require assistance with compliance issues.
To learn more about how L.M. Kohn can help you succeed as an independent advisor, contact us today.