We’re well and truly over 2104!  In our last blog for 2014, “Tony and Carl’s Totally Awesome Performance Appraisal”, we reflected on the rise of the 5th “D” word in 2014 – arguably the most feared of the “D” words (the “originals” being Disintermediation, Disaggregation, Democratisation, and Digitalisation).

That’s because “D#5” is for Distraction as the scandals in the industry, the FoFA fiasco and the factional fighting distracted consumers and wealth management participants alike, challenging participants to embrace new or improved models that better serve clients and are seen as high value propositions.  It seemed like the dreaded D#5 word caused many industry participants to shy away from decisive action in 2014.  D#5 is not going away, however.  For this reason alone, we believe that “doing nothing” against the tide of distraction, disturbance and disruption is not an option for 2015.  Decisive action is required, if only to stand-still, let alone progress in leaps and bounds.

Managed Accounts have been hailed in numerous quarters as one avenue for wealth management firms to address the D-words, including Distraction, so as to move forward by embracing new and improved models that better serve clients.  Much has been written and spoken about their pros and cons and the complexity of determining the best overall solution for a particular practice, dealer group or other organisation.

On that score, T&C is running a webinar on Managed Accounts, and the opportunities they create at 12 noon on Thursday, 30 April 2015 (see the following link for registration).

Register for webinar – “Managed Accounts, The Good Life”

But Distraction will squarely drive another long term trend in 2015 – and that’s strategic compliance.  Strategic compliance will be the new benchmark and extends well beyond the traditional “transactional compliance” which is largely static, box-ticking and based on the well-known maxim of “CYA”.

No-one in the wealth management industry will escape the harsh glare of a burgeoning regulatory load and heightened compliance surveillance.  It’s game on.  There is nowhere to hide from the need to take a far more strategic and comprehensive approach to compliance in 2015, especially when it comes to portfolio monitoring and delivering investment solutions that are “true to label”, in accordance with clients’ needs and unequivocally in their best interests.

Look no further than a recent report showing demand for compliance professionals increased over the summer break and that compliance recruitment rose in that period.  Positively un-Australian to be at work hiring compliance officers over Christmas and New Year – something must be going on!

Hiring all the compliance officers in the country will not, however, address the 5th D-word unless the fundamental approach to compliance also changes.  Throwing money and bodies at transactional compliance will not cut it.

By way of example, look no further than a strategic approach to compliance for Managed Accounts and the monitoring of investment portfolios and their mandates.  With the advent of smart, flexible technology (ie Digitalisation), compliance can be moved to the front end of the portfolio management process and applied throughout as a client-tailored overlay that ensures portfolios are “true to label”, in accordance with clients’ needs and unequivocally in their best interests.

Under a transactional compliance approach, client’s portfolios can actually be found entirely compliant with an organisation’s research recommendations, or with its APL, but be disconnected from what might be in the client’s specific long-term interests, stated personal preferences and have drifted away from full mandate compliance.

Strategic compliance starts with a robust, scalable industrial strength system, led by the client’s own rules, preferences and constraints, anchored by clear organisational model and portfolio mandates, neutral positions, ranges and rules, and totally integrated into the entire investment and portfolio management process, with feed-back loops and continuous improvement mechanisms.

Diagrammatically, strategic compliance v. transactional compliance looks like this…..


In short, Digitalisation aided and abetted by disturber technology is rapidly becoming available to embrace strategic compliance that preserves and enhances enterprise value.  The message in this world of Distraction is simple.  Do it to yourself, your way, before someone does it to you, their way – and the regulators have ways and means that are not necessarily in-line with your own aspirations, starting with the initials “EU”.