Communicating with your Clients About Compliance

Compliance vs. Convenience

Inevitably, there will come a time when maintaining your compliance policies will create some sort of inconvenience for your clients. Perhaps the adviser sent the client the wrong form to have them sign, and they will have to sign the correct form in a separate sitting. Or maybe the client received the correct paperwork, but they failed to initial in the appropriate location.

Another common occurrence, is for the client to be in a bind and in need of an expedited service that requires their signature, and they aren’t “near a fax machine”, or they are in a location that “doesn’t have access to email” for them to receive and return needed documentation. Although these occurrences can’t be completely avoided, there are a few things that can be done to more effectively prepare clients for compliance obligations, so that the compliance program doesn’t incur unnecessary risks.

Managing Producers

It can be suggested that the most intense conflict surrounding this subject lies with Managing Producers, or individuals within the firm that operate in both the capacity of Financial Adviser and Principal simultaneously. Anytime a client is inconvenienced as a result of a mistake of the Adviser, it is embarrassing for the adviser to have to go back to the client to admit that mistake in order to correct it.

Oftentimes, multiple mistakes tend to occur with the same client, resulting in diminishing goodwill and a decrease confidence in the adviser. In many cases, when this conflict exists, it is common for the adviser to “err on the side of revenue”, and cut corners on the compliance piece. That is because most Advisers get into the business to be service providers, not compliance officers. This can cause a problem for the compliance program.

3 Best Practices to Minimize Compliance Inconveniences for Clients

So what are some ways to minimize conflict when operating in this dual capacity to be effective on both sides of the fence? Here are some ideas.

1.) Clearly communicate compliance policies to clients upfront by spending time making sure clients understand documentation - When initiating client relationships, there is a point of commitment when the client is signing the advisory agreement. It’s easy to get excited, want the documents signed, ADV and Privacy Policy delivered, and suitability data gathered so that the adviser can start servicing the client.

But taking a bit of extra time during this period, to review these documents with the client will establish a precedent with the client that the adviser will pay attention to detail on compliance matters going forward. The client may not immediately seem engaged in the process of combing through the initial compliance documents with a fine-tooth comb, but in the long term, this practice will increase the probability that they will respond more positively to small compliance inconveniences going forward.

From a sales perspective, this practice can also make the adviser appear to be more detail-oriented and precise than previous advisers the client may have worked with, instilling confidence in the client that this will also be the approach taken to service their needs.

2.) Remind Clients of Compliance Items along the way - After the precedent has been initially established that the adviser will be thorough in compliance items, continue to reinforce this idea over the course of the relationship by reminding clients of such items whenever the opportunity presents itself. For instance, when requesting a copy of a client’s Driver's’ License to open an account at the Custodian, remind them that it is against compliance policy for them to email such information without encryption, and provide a secure alternative for them to submit it.

Another example may be taking an extra step to review client suitability information while they are executing an item that doesn’t necessarily require this information to be updated and documented, based on your conversation with them. If the client mentions a college event for a child in common conversation, the adviser can take the time to see how that may impact the suitability profile, as opposed to simply breezing over that item in the conversation. Activities like this will serve as a constant reminder to the client that compliance is a priority for the firm.

3.) Give the client access to resources when they are displeased with inconveniences - Despite how diligent an adviser is, a client will inevitably become annoyed at some point with a compliance obligation. It’s a part of the business. When this occurs, one option is to treat it as an educational opportunity. The client will initially become annoyed with the adviser or the firm, because this appears to be the source of the inconvenience.

They rarely think of the regulatory agency that is creating and enforcing these policies, as being the immediate source of their frustration. Therefore, when the client becomes frustrated, is the appropriate time to remind them of this. By letting the client know that the adviser is on their side, and the “regulators” are the source of the frustration for both of them, the client may feel that they have a compliance advocate, as opposed to an offender. This process is most effectively executed by providing the client proof of the source of their inconvenience… The Regulations!

Give the client access to the regulatory guidelines that are creating their inconvenience. If the adviser can screen-share and review a quick item from the regulator’s website, this is best. If the client is the type that wants to dig through pages on their own, then the adviser can provide a link to the regulation and point out the sections that are relevant to their circumstances. This may prevent the client from feeling “victimized” by the firm.

The nature of Compliance is such that it only functions through documentation. This documentation, often time-consuming and burdensome, creates inconveniences for both advisers, and clients. However, by utilizing these best practices, advisers can begin to minimize the negative impact these inconveniences create for their clients.

About the Author: Scott Gill is the Director of Keeping Us Compliant here at XY Planning Network. Outside of the office, Scott enjoys watching sports, exercising, and operating the charitable organization he created upon his father’s passing.