[Well-run businesses are often worth more than the sum of their parts. They have repeatable processes and carefully designed systems, and astute investors consider these firms worth a premium valuation. Unfortunately, the path to enterprise value is fraught with challenges, including cognitive traps that lure management away from important initiatives. For example, some financial services firms strictly and heavily invest in revenue-generating areas, such as sales and trading, while neglecting compliance departments.
This vital area of enterprise value is often seen as a "necessary evil" rather than a source of firm value. That perspective can lead to non-optimal, do-it-yourself efforts to save costs, but without expertise and commitment to resources. That mindset can become impractical and ineffective as your firm grows. Without an encompassing systematic approach, enterprise value can take a hit.
To learn more about compliance and its place in building enterprise value, we reached out to Mac Bartine, CEO of Smartria—an award-winning, cloud-based compliance software platform designed to address the needs of compliance consultants, compliance officers, operations teams, investment advisors, wealth and asset managers, and the staff who support them. Their advanced compliance software solutions serve both small RIA compliance teams and large, complex financial organizations.]
Bill Hortz: Why is regulatory compliance such a critical issue for financial firms?
Mac Bartine: Compliance isn't the boogeyman, and it won't randomly grab your company's ankles from under the bed. The problem with compliance is not that it will crater your company. But you can genuinely intend to do the right thing and still miss important details that can cause you to pay penalties, return client fees, and then have to report that painful experience to your clientele. The good news is that a bit of forethought and good tools will make a massive difference in your compliance outcomes.
Hortz: What are some of the key criteria to consider when constructing an enterprise-level compliance program?
Bartine: One size does not fit all when it comes to compliance. The best solutions are scalable and customizable to the organization and its various business models. They need to be both broad enough and deep enough in their solutions. "Broad" meaning they solve a lot of different classes of compliance problems, and "deep" meaning those solutions are complete enough to be fully effective at solving the problems they are meant to address.
Compliance is a constantly moving target in our industry. You need a compliance tech partner who updates and improves based on what is happening. The solution also has to be intuitive and easy to use. If your compliance solution is hard to use or understand, that is a significant detriment to your firm's culture of compliance.
Hortz: What are some of the different compliance solutions you address with your platform?
Bartine: We provide our customers with a complete compliance management solution. Offering a complete, integrated compliance platform means they use fewer compliance management solutions, which leads to greater efficiency and value.
Solutions we offer include employee trade surveillance, automated compliance calendars for all employees, multiple solutions for ensuring complete books and records, vendor due diligence, proof of fiduciary duty, employee onboarding, and CE tracking…the list goes on. We have worked hard to strategically provide a very comprehensive platform.
Hortz: How do you design your software platform and technology to transform compliance from an operational struggle into a driver for growth?
Bartine: The topic of good compliance management driving growth can be controversial, and a software-based solution suggesting it makes it even more so. I believe strongly that a good compliance management program—with or without software—can make your company more profitable. Firms using compliance software have a better shot at building a compliance management program that creates significant efficiencies for all employees. This is especially important for IARs, as they are the organic revenue generators of the business. Make their compliance work more efficient and less stressful, and you are both saving time and making your revenue generators happier and more productive.
The controversial part of the suggestion to use your compliance efforts as a marketing tool is that it can come across as guaranteeing you are compliant/safe to work with. It is analogous to performance advertising. You would have to explain how being compliant does not guarantee investor safety. I would love to see someone do it well so that regulators could get behind the concept, but it will definitely take some thoughtful consideration.