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Build compliant investment proposals with automated suitability checks

  • Cross-Border
  • Cross-Border Instruments
  • Cross-Border Interaction
  • Suitability
  • Wealth Management

Learn how implementing dynamic service-, instrument-, suitability- and tax checks enables client-facing experts to tailor superior offerings at scale, reduce risk and provide compliant investment ideas to international clients without delays.

Clients:

Partners:

Coverage
  • 100+ jurisdictions
  • 346 rules per country (avg.)
Scope
  • MiFID II (EU), FIDLEG (CHE), FAA (SGP)
  • IFA (ITA), UCITS, AIFM, FinSA
  • and many more
Available via
  • API and App
Cross-Border Instruments

Can I advise my client domiciled in the Netherlands on our closed-ended Private Equity fund?

Cross-Border Interaction

Which restrictions apply when discussing investment ideas with my Singapore-based client via a video-conference?

Cross-Border Instruments

Can I send my prospect domiciled in the Philippines the product factsheet of one of our equity-linked notes?

Cross-Border Interaction

Do additional restrictions apply if my client’s financial advisor is also attending the quarterly performance review meeting with my client?

Suitability

How can I ensure all investment ideas proposed to my client are in line with his risk profile?

Cross-Border Instruments

Is a sales registration in Austria required if I want to advise my Austrian professional client to invest into an investment fund?

Dealing with instrument-level suitability checks today

Regulatory and suitability checks are core concepts of the investment advisory process. Investment advisors have to take many things into account when advising clients and building winning portfolios with confidence. They are expected to deliver tailored investment advice that clears out any regulatory uncertainty by design. 

In an industry that runs on paper-based compliance procedures with siloed tools and heavy reliance on training, client advisors feel an unfair pressure to become subject matter experts on complex and specific financial regulations.

The challenge of instrument-level suitability checks

A compliant investment advisory process is a complex procedure that requires deep investment and regulatory knowledge. The challenge lies in offering only investment products to clients that meet all regulatory and suitability restrictions but without limiting the offering universe at the same time.

The regulatory complexity is the main blocker visible right from the start of the process. Understanding the licensing regime under which a relationship manager is offering advisory services or whether clients in certain jurisdictions can only buy locally registered instruments already makes it difficult for an advisor or an organisation to create compliant investment proposals at scale. 

In a world where non-compliance is not an option, insufficient due diligence on any of the following checks can lead to significant legal or regulatory risks:

  • Checks on client interaction level: Where and how can I offer my investment advisory service? 
  • Instruments level checks: What instrument products can I offer? 
  • Suitability checks: Which instruments are suitable for a client portfolio? 
  • Tax checks: What tax impact do investment products have on my client?

Another challenge is the cost pressure and the digitisation in the wealth management space, as the race to the bottom on fees is ongoing. Robo-advisors and highly scalable solutions might initiate a shift from traditional pure advice on single products to a more holistic and client-based approach. One example of this development is the impact of taxation on client level, an aspect too often not taken into account in today’s investment advisory offerings. 

In this fast-paced reality, banks and decision-makers have four options ahead, each with its benefits and fit to individual risk or business appetites:

Business potential Risk minimisation Ease of maintenance Speed of launch
Reduce product offering + +++ ++ ++++
Reduce market coverage + +++ ++ ++++
Remain paper-based ++ + ++ +
Build inhouse rule framework +++ +++ + +
Conduct dynamic suitability checks ++++ ++++ +++ ++++

Conducting dynamic suitability checks on instrument level

Implementing dynamic suitability checks starts with having the regulatory restrictions turned into digital rules for every country where an advisor offers services. What needs to be covered are requirements on how investment advisory services can be offered, restrictions on specific investment products, client suitability requirements and even tax implications on instrument level.

Financial institutions can either digitize existing inhouse knowledge or obtain machine-readable rules from providers ‘out of the box’. 

Rule digitisation is the necessary first step towards smart compliance. Equally important, if not more so, is for rule experts, such as legal and compliance teams, to have an easy way to review and update rules regularly. An organisation that wants to speed up operations by digitising the regulatory requirements for their investment advisory framework must be capable of handling more than 300 single rules per country. Managing these the old way (e.g.: with the help of spreadsheets) is not possible.

Last but not least, these rules should be available throughout the organisation and seamlessly integrated into existing applications, portfolio management systems, optimisation tools, and so on.

In sum, the three pillars of a scalable dynamic suitability check framework are:

  • Regulatory restrictions for providing investment advice in a digital format: an easy to maintain repository of country- and product-specific rules customizable to an organization 
  • Application to review investment proposals: digital rules can be either integrated into a fully-fledged investment advisory process or accessed via a simple compliance front-end
  • Flexible integration options empowering IT teams to integrate digital rules into in-house core processes.

Benefits of using dynamic suitability checks

In the race for clients, the combination of legal expertise and technology is the deciding factor and long-term business enabler. With the help of dynamic suitability checks performed automatically organisations will be able to:

  • Create targeted products highly relevant to the risk profile and serving the market scope of even the most global clients
  • Reduce risk: up to 8-fold reduction in compliance breaches 
  • Speed up time to market with up to 12 times faster suitability checks on ISIN level 
  • Scale efficiency across distributed teams by easy addition of new countries
  • Remove IT bottlenecks thanks to a one-time integration