In the turbulent space between wealth technology and the law, change can happen overnight. With digital toolkits and automated processes in their possession, wealth managers can go from compliant to non-compliant at the flick of a switch. As in most industries, the idea behind information technology is to relieve wealth managers of manual tasks while keeping the work efficient and accurate.

If a firm introduces "digital compliance assurance" when it compiles model portfolios, its analysts receive early warning of key regulatory events directly through their 'tools' and can incorporate them into comprehensive and market-specific "opportunity overviews" (a sales term). Connected to the internal compliance system, legal guidelines and policies appear where relevant.

Portfolio management tools

The planning of a compelling investment-related proposal is a complex and data-intensive process. When a wealth management firm joins regulatory rules and business practices with clients’ needs, it creates countless combinations of criteria and data points that it must take into account. To facilitate this process, it uses digital tools to build up portfolios and strategies that take advantage of this information. Research indicates that almost half of wealth managers now analyse data regularly and add insights that they gain by using artificial intelligence when they want to refine the advice that they give to customers. Even when they are comprehensive and sensitive to market trends, portfolio management tools sometimes struggle to satisfy all regulatory requirements – especially in a cross-border context.

In a sector prone to constant regulatory change, best practices enshrined in wealth management software may become outdated overnight, rendering firms' proposals less profitable, less well suited to investors’ needs and even, in some cases, totally non-compliant.

Tax can be another trap!

Tax deductions are another thing that can make or break any strategy for investment. Inadequate wealth management software sometimes overlooks or fails to take full account of national and international tax standards. As a result, tax-related miscalculations and under-performance can stop customers from trusting an institution and can weaken its relationship with them, perhaps causing broader damage to its reputation.

The software comes with its own pre-installed default settings. If a firm replaces these with company-specific "compliance assurance" (the auditing and monitoring of activities to ensure that risks of failure to comply are within an organisation's risk appetite) it will align its wealth advisory process with its internal compliance. Operating behind the scenes of the firm's internal infrastructure, and maintained by its own compliance experts, the plugged-in "assurance" layer permits or rejects investment strategies, internal policies and risk appetites.

The risks to compliance of wealth management IT

Technology is vital for wealth management firms that want to survive. Their data-intensive advisory processes rely on the careful processing of various criteria while automation makes market research, portfolio planning and CRM as efficient as possible. Wealth technology, however, also brings with it the risk of non-compliance. In particular, digital investment management tools may fail to take complex regulatory standards into account when people are using them to form cross-border strategies for investments.

Over-reliance on default settings and automated workflows in such instances frustrates compliance departments in their efforts to obey regulators. The integration of a digital, stand-alone compliance layer, overseen by regulatory experts, into the wealth advisory environment is an effective way to align various processes with international regulatory standards and internal policies. This will stop compliance from becoming a “black box,” with all the risks that that implies.