– Fiona Augustine and Claire Dunne
With rising regulations and compliance costs, more wealth management firms are looking at using newer technologies to enhance their trade surveillance and suitability practices. I chatted with Claire Dunne, our VP of Product Management, to explore the trends in surveillance practices in the industry and how they influenced our Skience Surveillance solution.
Trade Surveillance Back in the Day
“Way back, when I first started in the wealth management industry, if you were a principal who performed supervisory or compliance reviews, you would get a printout of the trades that happened the previous day. You would have to know the clients and advisors at your firm, what they were investing in, and whether they were a new or an existing client. If you wanted to see the client’s investment objective, you’d have to enter the client’s account number in the system to view the suitability information. If you wanted to determine if they purchased too many shares of a stock or mutual fund, you had to have a tally in your head — I know this client, I know they have $5m with us, and they just bought a trade worth $1m, so I should look at that account.
When it was all paper, it was so challenging to retain this information in your head about all the clients and advisors, and you could have been supervising hundreds of advisors. With everything going digital, thankfully, we don’t have paper processes now. The rise in technologies has led to the introduction of digital trade surveillance solutions in the market. Now firms need to understand how to fully optimize them.”
The Challenge
The challenge is traditional trade surveillance vendors are expensive for small and mid-sized firms. Some of the traditional vendors charge for each data provider, and the rules are so complex, the cost to implement can quickly become too high. And when a wealth management firm needs assistance creating and customizing the system for their rules, vendors create another layer of costs and complexity to the process. Over-engineered platforms make it difficult to deploy and hard to digest what the firm is doing. This combination is a deterrent and exposes wealth management firms to greater cost, risk, and inefficiency.
Why Skience Surveillance?
The Skience Surveillance platform was designed to help wealth management firms achieve operational efficiencies, customized configurations, increased collaboration, and cost-effectiveness. Today, advisors desire the freedom to sell all kinds of products, including managed accounts, mutual funds, and annuities. Moreover, they need the flexibility to open clearing, custodial, and direct accounts for their clients. To maintain their competitive edge, firms are expanding their product offerings, but that also means extending their surveillance to these products as well.
Full Account Transparency
Skience is not only pulling in data coming across multiple data providers, but we also have a rules engine that is running to help firms identify and flag trades that may be outside their policies or questionable based on the details available in their Financial Account. For example, if the amount of the trade is $5 million and the value of the account is $500, you know something’s not right. Skience Surveillance provides principals with full visibility into all account activity for the advisors they supervise.
Increased Efficiency
Another design element was to flag the trades systematically, using automated workflows. It makes it so much easier for supervisors because knowing every single activity or all balances is not always possible. Principals have access to household, client, and account information along with 12 months of historical exceptions. With full visibility into an account, principals can easily collaborate with advisors and support staff, which helps create workflow efficiencies, improve account decision-making, and identify trends based on historical account data.
Custom Configurations
The wealth management industry is consolidating — there are fewer small firms, and acquisition in the space continues to rise. With firm sizes increasing, business processes must continue to grow and scale. Most firms are at the point where you cannot have a single supervisor or principal reviewing the firm-wide trade blotter. The trade blotter must be divided based on the advisors or business the supervisor is responsible for. In our Surveillance platform, you can configure queues based on who is responsible for supervising the accounts. You can create a northeast territory trade blotter or an Advisory trade blotter where you can have one or multiple approvers, so your team can focus on what’s relevant.
A System that Grows with Your Firm
Current regulations require firms to supervise at the account level. Our rules-based engine works for both trades and accounts. During the new account opening process, we run suitability checks on the advisor’s license and registration. But over time, clients move. One of the account-based rules in our Surveillance solution is, on a periodic basis, testing each account in the system to determine if the advisor is properly registered or licensed.
Increased Collaboration
What’s unique about our solution is everyone can contribute to trade surveillance and account monitoring. Advisors and principals can easily collaborate within the platform rather than using separate communications like email or calls.
Now, firms have a trade surveillance platform that:
- is a centralized location of all data from all Data Providers and produces a single blotter.
- has a robust rules engine that looks at every single trade and determines if it exceeds the criteria defined by the firm.
- includes configurable tests that can be run at the account- or client- or household-level.
- can have a look-back period that spans across transactions for multiple days.
- enhances collaboration between principals, advisors, and support staff.
Ready to Deep Dive with Skience?
Learn more about the how compliance teams are leveraging Skience Surveillance to meet their compliance needs and create an enhanced principal experience. Schedule a demo today!