Can Compliance Be a Revenue Generator?

Regulations and compliance burdens have always been a necessary cost of doing business for most advisory firms, even as technology has made the function more efficient and streamlined. 

But can a focus on strong compliance—with high levels of cybersecurity protection and succession plans, for instance—move from being a thing that an advisor has to do behind the scenes, to being a business function that an advisor can strengthen and enhance to the point of touting the value to clients as a way of marketing their firm and growing revenue?

“There’s a reason that TAMPs and RIA networks and other organizations like those are providing compliance technology to RIAs,” said Mac Bartine, Chief Executive Officer of SmartRIA, speaking on a panel during Advisor Circle’s Future Proof festival. “That’s because it does provide significant value.”

Some larger firms tout their compliance processes to attract advisors looking to join or sell their business, he said. Advisors also use compliance technology to build trust with clients and investors. Why can’t that value be monetized?

“There are a lot of people who say that clients and the investors don’t trust their advisors sometimes,” Bartine said. “Trust comes from communication, so firms can use their compliance technology to set up, for example, quarterly reviews and quarterly communication with clients. It’s scary because the market goes up and it goes down, and what do you say? They already know that it’s going up or down, and if you’re just communicating with them and building trust, that ultimately helps to keep clients and build your business.”

Marwa Zakharia, CEO of AssetBook, disagreed, saying advisors should be careful when thinking about compliance software as a selling point or revenue generator. Regulators may look askance at firms touting adherence to the law as a sales tactic.

“It’s software that would potentially help the advisors to do their jobs,” she said. “Operational efficiency—that is what we’re focusing on. Whether it’s a revenue generator or not? I think that’s a dangerous statement to make, and we need to stay away from that.”

Matt Bowers, general counsel at Rayliant Global Advisors, said it’s hard to say whether the software itself drives revenue, but compliance and, more broadly, a culture that touts secure and compliant business processes, are becoming selling points for firms, both acquirers and those that are looking to grow organically. 

“In general, strong compliance, strong culture does in many cases result in better performance,” Bowers said. “I don’t know if it’s a causation issue or correlation issue, but we do know that firms that have strong compliance infrastructures, firms that have strong firm cultures have been demonstrated to perform better in their investments.”