Staying Compliant And Secure: Strategies For Financial Advisors To Navigate The Changing Regulatory Landscape
Under the U.S. Investment Advisers Act of 1940, money managers, investment consultants, and financial planners are subject to regulation as “investment advisers”. As the financial industry evolves, financial advisors face an increasingly complex regulatory landscape. Changes in tax laws, fiduciary rules, and cybersecurity regulations can be difficult to navigate, and failure to comply can result in significant legal and financial consequences.
While Pocket Risk is here to make risk profiling as easy for you as possible, this blog post will tell you some strategies for staying up-to-date with regulatory changes and maintaining compliance to secure your clients’ information. Let’s begin!
How Can Financial Advisors Navigate The Changing Regulatory Landscape?
Understanding Regulatory Changes
The first step in staying compliant is understanding the regulatory changes affecting your business. Tax laws, fiduciary rules, and cybersecurity regulations are just a few areas that financial advisors need to be aware of.
Every year, the tax laws change. Although it is hard to predict all that will change from year to year, it is possible to forecast the times when significant changes may occur. Since these changes can impact your clients’ investment strategies and tax liabilities, it’s important to stay up-to-date on these changes and how they may affect your clients’ portfolios.
Fiduciary rules, which require financial advisors to act in their clients’ best interests, have been a hot topic in recent years. These rules were implemented to protect investors from potential conflicts of interest that could arise from financial advisors’ advice. Fiduciary rules change and can impact how you offer investment advice and manage your clients’ assets.
Cybersecurity regulations are also becoming increasingly important in the financial advising industry, as data breaches can result in significant reputational and financial damage. Businesses suffered average losses of $4.35 million from data breaches in 2022. In the first half of 2022, there were around 236.1 million ransomware assaults worldwide. In 2021, the accounts of one in every two American internet users were compromised. In 2023, the likelihood of increased Cyber-threats is very predictable.
Staying Up-to-Date
Staying up-to-date with regulatory changes can be a challenge, but it’s essential for maintaining compliance. There are several strategies that financial advisors can use to stay informed:
(1) Attend Industry Conferences: Attending industry conferences is an excellent way to stay up-to-date on regulatory changes. These conferences often feature expert speakers who can provide insights on regulatory changes and how they may impact your business.
(2) Read Industry Publications: Industry publications such as Financial Planning and Investment News can provide valuable information on regulatory changes and best practices for compliance. Staying current on industry news can help you anticipate and prepare for changes.
(3) Join Professional Organizations: Joining professional organizations such as the Financial Planning Association (FPA) or the National Association of Personal Financial Advisors (NAPFA) can provide access to valuable resources and networking opportunities. These organizations often provide updates on regulatory changes and offer training programs to help advisors stay compliant.
Maintaining Compliance
Once you understand the regulatory changes that affect your business, it’s important to take steps to maintain compliance. Here are some strategies for staying compliant:
(1) Implement Strong Cybersecurity Measures: Data breaches can be devastating for financial advisors, so it’s essential to implement strong cybersecurity measures to protect your clients’ data. This can include using encryption software, implementing two-factor authentication, and conducting regular security audits.
(2) Document Your Processes: Documenting your processes can help you maintain compliance and provide evidence in case of an audit. This can include documenting your investment strategies, compliance procedures, and risk profiling processes. If you want to find out what risk profiling is, read our blog “Risk Profiling: The Secret to Smart Investing.”
(3) Conduct Regular Compliance Audits: Conducting regular compliance audits can help you identify potential issues before they become a problem. This can include reviewing your policies and procedures, conducting employee training, and reviewing your cybersecurity measures.
(4) Work with a Compliance Consultant: Working with a compliance consultant can provide valuable guidance on regulatory compliance. A consultant can help you identify potential compliance issues and provide recommendations for maintaining compliance.
To Wrap Up
Navigating the changing regulatory landscape can be a challenge for financial advisors. However, staying up-to-date with regulatory changes and maintaining compliance is essential for protecting your clients’ information and avoiding legal and financial consequences. At the same time, you can use Pocket Risk’s risk profiling tool to handle your clients’ risk profiling much more straightforwardly.