Skip to content

Compliance Must Embrace – and Understand – AI

Compliance teams are overstretched. It’s become imperative they find ways to leverage technologies to become leaner, more effective, and better able to handle increasing demands. But they’re not alone in these efforts; the most recent OCIE risk alert indicates that organizations are also responsible for compliance programs that are sufficiently supported with both staff and technology.

As we’ve discussed before, an over-reliance on manual functions means compliance teams are overwhelmed by low/moderate risk issues. Technology and automation have to be considered as part of the equation so that teams can focus on the riskiest issues that matter most to the business.

As technology gets more intelligent, an opportunity arises in artificial intelligence (AI) as a catalyst to enhance the efficiency of a program. As we’ve mentioned, this can lead to a more mature, impactful compliance program and increased trust throughout the organization.

However, as programs mature and manual processes shift into automation, compliance teams will need to understand automation more and more. AI is an important tool, but at some point, compliance will be asked to explain how they supervise and test these tools to know they’re functioning as designed and expected.

At its core, AI is designed to monitor a data set and when a logical trigger is set off, to translate that information into an action. In some instances, that translation is clear and easily understood. But in other situations, especially when the way the AI translates between data sets and actions is covered under a “Black Box” due to intellectual property concerns, it makes explaining it to a regulator more difficult.

As FINRA wrote in its June 2020 report on AI and again reiterated during its November Conference on AI, a compliance professional needs to understand how the AI they are implementing aligns with regulatory expectations. These steps include a documented understanding of the data set-to-action translation and a method to regularly test the system to validate it meets legal and regulatory requirements. When the algorithm informing your AI is hidden in a “Black Box”, this can prove difficult.

It might be time to evaluate your firm’s use of AI in its supervision policies. If in the course of your review, you have any questions on AI and how to prepare for a regulatory audit feel free to reach out to your Hearsay account team to help.

The Shift from Sales Push to Marketing Pull, for Advisor & Agent Success – Part 1

It’s hard to remember that just 10 years ago, smart phones were not the norm. Most people weren’t on LinkedIn. Marketing was relatively simple, focusing on press releases, collateral like brochures, and advertising. Sales was pretty straightforward too. Selling financial services and insurance primarily involved cold calling to set up in-person seminars and meetings.

Fast forward to today. Usage of Facebook, LinkedIn, and other social networking sites has exploded. Everyone has a mobile device and everyone ‘Googles’ when they’re thinking of buying something. People research their options and go into even their first sales conversations as an educated buyer. At the same time, government regulators around the world have stepped up their privacy protections which make cold calling much more difficult for salespeople.

Over the last decade, these new consumer behaviors, technologies, and restrictions in consumer privacy have led to the shifts summarized below.

Four Fundamental Shifts in Selling

  1. Sales people are trusted advisors, cultivating professional networks over an entire career. Cold calling is a thing of the past.
  2. Selling is all about attracting clients using educational content. Sellers are partners and problem solvers. 
  3. Digital analytics arm salespeople with intelligence about who to engage with, what they are interested in, and when to engage them. No more blind ‘call downs.’
  4. Engagement across a multitude of digital channels is necessary to acquire and build client relationships, (rather than in-person events, especially now), and allows salespeople to scale like never before.

The Power of Sales & Marketing Collaboration

These shifts have pushed once separate sales and marketing organizations toward an essential partnership for success. Webcasts, white papers, research reports, and blog posts are the thought leadership and credibility magnets that get prospects interested in engaging with organizations. Sales teams depend on marketing for this content and the behavioral analytics to know when to engage with who and on what channel.

In the video, watch Hearsay’s co-founder and executive chairperson, Clara Shih, walk through these shifts and their impact on today’s sales funnel.

The Impact of Technology on Compliance Program Maturity

With newsworthy financial services regulations such as the Department of Labor (DOL) guidelines and Regulation Best Interest (RegBI), RegTech has recently come to the forefront. The reality is that technology has been rapidly evolving for some time to provide compliance professionals with the ability to leverage solutions designed to accelerate their programs. Yet, frustratingly, not all programs have taken full advantage of the technology available to them.  While the hurdles to adoption may vary from organization to organization, the impact of not fully utilizing the technology available to an organization are profound.

NAVEX, a consultancy that has specialized in assessing the intersection of technology and compliance, recently took a closer look at this matter in their 2020 Definitive Risk & Compliance Benchmark Report. The report delivers a number of important insights focused on the maturity of a compliance program by measuring how sophisticated, entrenched, and embedded a program is inside its organization. I’ve summarized highlights below:

  • The technology spend for organizations surveyed largely fell within consistent bounds across maturity levels. This is an important insight: the difference between maturity levels was attributable to the focus of their budget spend: lower maturity programs spent on manual processes, while high maturity programs focused on technology innovation.
  • Across the board, programs that were “Maturing” or “Advanced” were more likely to report “good” or “excellent” performance in all areas of the program, including trust, performance, outcomes and integrations with the business.
  • Less mature programs were often seen as “necessary evils,” while those that were more advanced were more likely to be seen as “partners” to an organization.
  • In addition, more mature programs typically had a higher level of trust and typically had a more substantial seat at the table for decision making in the organization.

Our takeaway? Organizations can achieve better partnerships between their business and compliance teams, increasing the levels of trust and performance of compliance, by refocusing their budgets on technology that eliminates manual processes.

There are a multitude of other important findings in the report, so I would encourage you to take a look through it. If it sparks any ideas or questions, please feel free to reach out to your Hearsay account team to drive a deeper discussion on the impact to your program.

The Advisory Firm of the Future: A Case Study

We’ve written about the advisor of the future and the fundamental shifts in both client and advisor attitudes, behaviors, and relationships (not to mention the recent shift to remote-first work) that are driving adoption of new technologies for client engagement. And in order to meet expectations as the client engagement model evolves and stand out from the competition, firms need to be forward-thinking in how they support their field.

Not long ago, we were lucky enough to get an inside look at a visionary firm launching cutting edge programs to support their force of over 3,000 independent broker dealers and corporate RIAs. Amy Webber, President & CEO of Cambridge Investment Research, sat down with us to share how she and her team are getting Cambridge-affiliated advisors future-ready, today.

First, Webber shared the three things she sees as critical for advisors to embrace to be successful, today and in the future:

  • The advisor of the future needs to stay innovative and leverage digital engagement heavily.
  • They need to use technology to do the right things and delegate tasks that are not value add.
  • There must be a relentless focus on personalization and customization.

The ‘New Century Council’

Cambridge is ultra focused on making sure their advisors are enabled to meet the three requirements outlined above. They have a ‘New Century Council’ made up of progressively minded advisors and corporate team members, including Webber, that meet regularly to discuss tools they’ll need to be successful into the upcoming decade.

Several years ago, the Council raised texting as a channel that would be critical to success. Not long after, they began exploring solutions and started using Hearsay Relate. Webber herself is a Relate power user and shows strong executive sponsorship by texting with the field. “Every generation is texting. We pushed ourselves to think about how Relate could be used by the home office to communicate with the field, and started the journey believing we had to lead by example,” she explained.

Webber shared a story that demonstrated both the power of their onboarding strategy and how Camridge uses texting to build relationships with personal messages. One of their top producers was resistant to texting, so Webber personally helped get him set up and told him she expected him to send her a text once a day. When he missed a day, she checked in to see how he was doing. This showed him how his clients feel when they get that type of personal connection from him. Incidentally, Webber shares her Relate number with any of her 3,000 advisors who ask.

Though their advisors are all independent, Cambridge carries the cost of Relate for two reasons. First, it’s a critical tool that makes advisors efficient and productive. Second, and perhaps more important, it’s essential for risk mitigation. They weren’t willing to take a chance that compliance requirements weren’t being met.

Centralized Contact Service Center

Many advisors join when they’re embarking on the process to build their own small business and need or want to leverage the infrastructure of a larger company. In addition to offering Relate to all advisors, Cambridge also offers a centralized support center. By joining Cambridge, they get technology, practice management, products and services, compliance, regulation, and—for a fee—a centralized contact service center at a scale they couldn’t build by themselves.

The contact service center, a team of virtual office assistants, is one of Cambridge’s most popular offerings, for both solo and larger offices. The support staff’s pictures go up on the advisor/agency website, they talk to clients, pick up delegated activity in Relate, and clients know them as part of the team. This extended team helps the advisors deliver that level or personal and customized service that clients expect without the heavy lift of increasing headcount. It’s perfect for advisors/agencies who don’t have the bandwidth or desire to staff and train a support team – and enables them to hit the ground running.

A Blueprint for Success

With a continuing eye toward future trends, Cambridge has ensured that their advisors are ready for today and the future. When COVID struck, they were prepared to handle the 100% increase in text messages in the following month, thanks to the foresight of their New Century Council and Webber’s leadership in getting Hearsay Relate in place well before the crisis happened. And while they had a 5-year plan for digital transformation that now must be steeply accelerated, their ability to adapt and lead by example will serve them well.