Cannon Financial Institute

Mega Trends We Cannot Ignore #4

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In this installment of the 6 part series on mega trends we examine the regulatory and risk management environment and its impact on our industry. As we monitor and consider this we realize the pace of regulation change will not decrease or get easier, and clients will not get less litigious.  Risk Management will expand to become an even more robust and costly requirement to be in the business.

Risk Management will move to incorporate VAR (value at risk) assessments for:  operating model risk, and reputational risk, in addition to the traditional suitability, supervision and reporting risk.  Technology solutions will become ever more important to solve the “what needs to be recognized,” and it will support the “monitoring” in ever more powerful ways.  But the capability for synthesis and decisioning against the risk management strategy and building risk mitigation processes will continue to need support.  This is true for institutions as well as at the practice level. 

Creating the algorithms and integrating those into the technology spectrum across all the systems to proactively recognize and then trigger exception alerts in real time is a key goal.  It will realize the promise of a fully integrated Advisor platform that also incorporates risk management.  To achieve this will require thoughtful integration of not only back office operations, but those associated with the front of the systems supporting client experiences, advisor deliverables to the client, and placement into prospecting systems.  In all activities the risk mitigation component will both trigger reminders and automatically search for exceptions.  The best designed will generate alerts, corrective steps and document the remediation activity with time stamps.  Then Advisors, compliance officers and regulators can be easily provided with the reports on status, remediation completions, for use internal and Regulatory examinations. 

On the way are risk assessment and management dashboards which will be used for evaluating operational efficiency improvements, identifying recurring exceptions so procedures can be created or refined, automatic compliance scores generated and the reporting to provide evidence of compliance in legal or arbitration activity.  This capability will help all parties understand fact from assumption or allegation.

Outsourcing will be a significant alternative for risk management similar to moves to outsource auditing and bookkeeping, the transference of the cost of compliance and supervision to a shared service platform, most likely the Clearing services providers will most likely be the only way for all but the largest firms to deal with this area of operation.

In our next installment of 6 Mega Trends We Cannot Ignore, we will explore how information about our business activities, our customer behaviors and the technology that uses and then disseminates that information is growing exponentially.  We will explore what that means and the potential for creating opportunity for building better business models and client experiences.

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