How wealth managers are leveraging behavioral intelligence technology to thwart client abuse

In this interview with Help Net Security, Lee Garf, Managing Director of Financial Markets Compliance at NICE Actimizeexplains how behavioral intelligence technology can help the financial industry combat customer abuse and reduce regulatory risk.

What has been the impact of the pandemic on the compliance of financial institutions and wealth managers?

Certainly, with more workers working from home or in a hybrid work environment, there has become a greater need to monitor behaviors as part of financial institution compliance. However, the implementation of new regulations has had the biggest impact on wealth managers over the past year. Since FINRA Rules Best Interests and Rule 2111 came into effect in 2020, it has had a significant impact on the wealth management, retail and insurance communities.

The industry has seen numerous fines levied against firms circumventing rulings, most recently up to $1 million for a firm’s alleged failure to adequately monitor its clients’ accounts for over-concentration in high-yield bonds or ” rotten”. In this climate, there is a demand for better supervision and monitoring. As a result, wealth management firms are looking for ways to manage their advisors, serve their clients, and meet regulatory requirements while ensuring the best results for all parties.

Additionally, many companies struggled to monitor a spike in trading volume even as their entire workforce moved. As a direct result, the quality of alerts and the efficiency of the review process have been significantly affected. Outdated review processes that rely on volume rather than quality of alerts will routinely fall prey to capacity constraints.

To combat this phenomenon, companies should not simply depend on more data or large volumes of separate alerts, but rather enrich their monitoring program by incorporating better correlations of many types of data. Alerts generated from business data alone can only tell part of the full story. While business data, combined with email and text communications from customers and combined with CRM notes, will raise the real higher interest concerns to the top of the pile, allowing better triage of compliance risks.

How does behavioral intelligence help wealth managers fight client abuse?

Behavioral intelligence provides regulated companies with important insights into the behavior of their employees and helps companies be more proactive in detecting various forms of misconduct. This not only impacts regulatory compliance, but also affects the relationship between advisors and their institutions as well as their clientele.

How does behavioral intelligence affect business strategies?

Today’s technology focused on wealth management is more than just a tool for detecting customer abuse. Today’s monitoring solutions can provide the business with behavioral intelligence data that can be used both to determine business strategies and to improve communications and relationships between internal advisors and their clients. Ease of deployment, enhanced by cloud technology and lower costs, has made these technologies essential for wealth management teams, not only to meet government rules and guidelines, but also for business planning that has an impact on the development of products and their results.

How can customers benefit from behavioral intelligence?

Behavioral intelligence aims to focus on the “know your employee” aspect of fit, which brings benefits to an entire financial services organization, as behavioral data becomes easier to access and analysis for short-term and long-term benefits for advisors and management.

The market for wealth management compliance solutions has seen strong growth over the past year, at both mid-sized institutions and large financial services firms. Ease of deployment, enhanced by cloud technology and lower costs, has made these technologies essential for wealth management teams, not only to meet government rules and guidelines, but also for business planning that has an impact on the development of products and their results. Again, supervision and monitoring is the key to success.

Any technological change implemented should consider a cloud-first approach. Even now, many businesses face persistent logistical challenges created by on-premises solutions, such as network capacity, VPN overload, and performance lag. Cloud solutions allow flexibility for business continuity plans and for general business operations once we get past the current uncertainty. With Reg BI planning to affect more than 57 million US households invested in US equity markets, geographic flexibility is paramount to strong compliance programs.

What should the wealth management industry watch out for in terms of risk this year?

As regulators enforce their regulations and impose fines and penalties, it is critical that financial institutions continue to manage their advisers and comply with applicable regulations. It is not only in the “best interest” of financial institutions to run a wealth management compliance policy, but a targeted approach also builds the trust their clients have in the institution itself. Some of the most recent advances in behavioral technology will support these goals.

As companies continue to implement their strategies to ensure Reg BI compliance, it requires a detailed examination of how processes are managed today. Existing suitability and communications monitoring technology is typically managed separately, and marrying the two can require costly integrations or laborious manual intervention that may not happen in real time.

Dolores W. Simon