Beth Haddock, renowned advisor and board member, shares crucial perspectives on regulatory changes, SEC proposals and the transformative role of governance in the financial landscape.
Russ Alan Prince: In what ways do you anticipate that regulatory changes in 2024 will affect wealth managers and asset managers?
Beth Haddock: 2024 is shaping up as a tumultuous year, punctuated by-election campaigns and movement on contentious SEC proposals later in the year. Anticipate some new SEC requirements, perhaps after the elections, especially around AI and predictive data analytics, investment advisor custody, and mutual fund reforms. While there may be revisions, it's unlikely these proposed rules will be discarded entirely.
Given the SEC's proactive stance, it's crucial for wealth managers and asset managers to stay alert and adapt swiftly. For instance, they will need to understand how competitors will adjust to the changes particularly if new rules will impact productivity and service to their clients.
A prime example of why firms need to be nimble is the breadth of the SEC's 2024 examination priorities outlined in the 28-page directive, covering 11 major topics for wealth managers. One noteworthy concern is the lack of tailoring to firm or business sizes. This uniform approach may stifle mid and small-sized firms, potentially hindering their growth prospects.
However, there is an opportunity for firms to thrive amidst regulatory changes by adopting a strategic approach to compliance. Compliance should not be viewed merely as meeting requirements but as a return on investment—ROI—for mitigating firm risks. This entails more than just drafting procedures; it involves hiring adept personnel capable of addressing operational risk, regulatory risk, and product governance—individuals who can serve as authentic business partners.
The key lies in understanding that true governance extends beyond technical compliance; it's about safeguarding reputation with an embedded approach to risk management, including SEC requirements. Firms that embrace this mindset can not only navigate regulatory challenges but also position themselves with a competitive advantage.
Prince: How do you foresee governance assuming a more significant role in the landscape of financial services?
Haddock: The financial services landscape is undergoing significant changes, with governance playing an increasingly pivotal role as a beacon of a well-run business capable of serving multiple stakeholders, such as clients, employees, and industry. Proactive data governance, corporate governance and tech governance, by way of example, will minimize business disruption and secure a firm’s brand image.
This year was full of examples of governance falling short, whether it was mismanaged data breaches—Solar Winds—performance and product development strategy—OpenAI—or culture wars—many Ivy League schools. From these few examples, firms can learn how to improve governance before there is an incident or crisis impacting a firm’s business or client base. Firms that prioritize robust governance practices will not only meet regulatory expectations but also enhance their resilience and adaptability to unforeseen challenges.
Prince: What impact do you expect the events of 2023 to have on the transformative governance strategies adopted by leaders in 2024?
Haddock: As we look ahead to 2024, firms should prepare for change on multiple fronts; most importantly heightened expectations for effective risk management of technology, authentic firm culture, and transparent communications.
As the examples above show gaps in data and corporate governance or silence in the wake of cultural issues, leaders need to have a playbook for how they communicate to employees, customers, and prospective customers when these types of governance issues arise. Management and the board of directors should consider strategies about how to communicate effectively in such a transparent and fast-paced world (https://sloanreview.mit.edu/article/leading-in-the-age-of-exploding-transparency).
To navigate market dynamics, the competitive landscape, and evolving challenges, boards must be well-equipped and engaged. It might be opportune for firms to rejuvenate or establish a robust advisory lineup, ensuring access to diverse expertise to inform strategic decision-making.
Transformative governance strategies in 2024 must also encompass comprehensive planning, resource optimization, and technological agility. Firms proactively embracing these principles will be better positioned to navigate uncertainties, capitalize on opportunities, and achieve sustained success in the ever-changing financial landscape.
As 2024 unfolds, firms should identify low-value tasks suitable for automation or outsourcing. Leveraging cutting-edge fintech and AI is paramount, but due diligence is essential to stay ahead and effectively serve clients and prospects. Upgrading technological capabilities where needed ensures that firms do not fall behind in a rapidly evolving landscape.
Russ Alan Prince is the executive director of Private Wealth and a strategist for family offices and the ultra-wealthy. He has co-authored 70 books in the field, including Making Smart Decisions: How Ultra-Wealthy Families Get Superior Wealth Planning Results.