In this week’s episode of Oyster Stew, Polly Cordle and Consultant Gray Houghton share how Oyster Solutions Software can make managing your compliance calendar and Annual Review processes easier and more efficient using workflows and automated reporting.
Oyster Solutions is one “solution” for many systems:
- A system to track various workflows and processes across multiple departments.
- Advertising submission tracking including teaching your employees how to submit “compliant” pieces
- A system that produces metrics and reporting dashboards for management to assess progress
- Trade monitoring and best interest alert system to advise when portfolios fall out of line
- System(s) for tracking employee attestations and training throughout the calendar year
- A system to keep in line policies with procedures and ensure one doesn’t exist without the other
Oyster provides free resources such as podcasts and blogs, as well a team of consultants and software to help you organize and automate your compliance program. Oyster Consulting has the knowledge and experience to support your efforts to achieve compliance. To receive assistance with the implementation of your compliance program, or assistance in understand the impact of these priorities, please give us a call at (804) 965-5400 and our Relationship Managers will be happy to connect you with an Oyster expert.
Polly Cordle: Hello and welcome to this week’s Oyster Stew. I’m Polly Cordle, managing director of the Oyster Solutions platform. And this week I’m joined by Gray Houghton, as we take a little look at annual reviews and compliance calendars, and things to think about here in January. We hope this gives you an idea of areas that you can get some attention to as you start off the new year and Happy New Year, everybody.
Gray Houghton: So you’re the practice lead with the Oyster Solutions platform. Do you always work in the Solutions platform?
Polly Cordle: I don’t only work in the Solutions platform. I historically, I’ve worked outside of the Solutions platform with our big compliance calendar for an advisory firm, that we keep on a spreadsheet. But about two years ago I put my first client on Solutions and that really kind of changed it for me. And then, once I had a couple of clients on Solutions, I kind of refused to do a whole lot outside of Solutions. So that’s how I
ended up platform.
Gray Houghton: Well, that seems reasonable. Can you tell a little bit about the annual review requirements for firms?
Polly Cordle: So whether you are an advisory firm or a broker dealer, you have some sort of annual requirement, and firms will look at their compliance programs, kind of top to bottom, and see how effective they are, whether that’s the IA version of that review or the BD version. That’s really your main goal – to look at your compliance program top to bottom, see if it’s running as you expect it to, and see if it’s effective. On the advisory side, you have a reporting requirement that falls under 206(4)-7 and on the BD side you have a 3120 requirement and a 3130 certification that needs to be done. So when firms are looking at their compliance programs top to bottom, they tend to pull a lot of the work product of their program and look at the work product to make sure, for example, advertisements are being approved the way they should be approved, that they’re getting approval prior to posting, if that’s required, that anything that’s going on in the system from an audit perspective, whether that be an internal audit or a regulatory audit, that those things are getting addressed, that they’re being followed up on.
It’s a good time also for firms to look at their risk assessments and kind of take the compliance perspective of the whole firm, top to bottom, every part of it.
Gray Houghton: So before you used Solutions, how did you facilitate that annual review?
Polly Cordle: Well, for my annual reviews, prior to having Solutions, I had a checklist. I love a checklist and I went through and I pulled various documents. So in my experience with my firms, I like to run my compliance testing throughout the year and then pull it all during that review and make sure that the testing of the compliance program that we did throughout the year was effective, there were issues identified, those were either addressed or we addressed them in the annual review and determined to remediate them at that point. And then, after that portion is done, I write up my report with an overview of our business, any changes that have happened that year. I look at complaints that have happened that year. I look at complaints – complaints are a big part of everything. So I look at complaints and then I come back and create a remediation plan, and that remediation plan would identify and address any of the recommendations, any recommended changes to our policies, any recommended changes to our processes. And then I’m going to document all of them.
Gray Houghton: Okay. And how that you do it now?
Polly Cordle: So within Solutions, we still have a series of steps; however, they can kick off to multiple people at once. So I could ask the trading manager to send me a report and he would automatically get an email that says, “Hey, attach this report,” and he attaches that report. I can even give him a template to fill out of what information I need. Say “Download this, complete it, give it back to me.” That can be happening with him. At the same time, for example, my registration department is getting one as if “Hey run reports off the CRD system for late filings or any dropped state filings for an individual or the firm,” and then I can confirm whether those need to be addressed. Then all of that would come back in a review step for me and it kind of gives me everything in one place.
Now, one of the other things I’d like to do in a Solutions annual review is look at all the workflows in the system. Are they getting done? Are they getting done on time? And if they’re not getting done on time, is that a regulatory issue? Is it a resource issue? and address that. So the system allows me to run some dashboards and some reports about past due work, and work that’s not getting done. I’m not susceptible to someone saying, “Oh yes, I reviewed this report on December 15th,” when in actuality they reviewed it January 1st. I’m going to see in the system exactly what goes down the steps. So it tracks all of that for me and then I don’t fall prey to the “Oh I signed this but didn’t date it. Oh yes, I did that on December 15th. I did that on time even though I didn’t put a date.” So, Solutions kind of locks in a lot of my processes to make sure that I don’t have any issues with what actually happened versus what I’m thinking.
Gray Houghton: Right. That seems like a great tool. Well, since it’s January, we should probably talk about the compliance calendars too.
Polly Cordle: As folks are doing their annual review, I recommend that they take a moment and look at their compliance calendars as well. Some of that’ll get picked up just through the recommendations in your annual review. You’ll decide we need to do in a new task or whatever. Don’t forget to add those to your compliance calendar. It’s very easy to get your annual review report out of sync with your compliance program by saying you’re going to remediate something, but then not tracking it on your compliance calendar. So make sure that those get updated as you go through that review. Also, it’s a really good time to look at new regs that have come out over the year. It makes sure those are addressed in your compliance calendar and in particular, this year, looking at Reg BI and making sure that you have the steps in your compliance calendar to make sure you’re in compliance with that reg before it starts.
Polly Cordle: So you’ve got a Form CRS you need to fill out, you’ve got policies that need to be written, you’ve got communications that need to be sent. All of those things should go ahead and be added to your compliance calendar now at the beginning of the year, and then you’ll have that as you go through. Now, in Solutions, when we make a change to a policy, so for example, Reg BI, if we’re going to make a change to a policy, we immediately create the workflow and attach it to the policy (the workflow that will enforce that policy), and then where we can, we schedule it, to kick off automatically so that it doesn’t get dropped. So
The other thing I think I mentioned earlier was risk assessments. And this is really as you’re looking at the full picture of your firm and your compliance calendar. It’s a good time to make sure that you haven’t obtained any new risks during the year – new bonds business, new products that you’re offering, new types of clients that you haven’t had in the past, new employees who may not be as up to speed as your employees who’ve had a longer tenure with the firm. So go ahead and get that stuff into your risk assessment and kind of do the whole thing. It puts a lot into that first quarter of the year, which is generally when we see people doing their annual reviews, particularly on the IA side because you’re going to have your updating amendment that’s due. So it puts a lot in that quarter. But it also gives you a really good start to the year to have everything in line, and, going forward, you’ll know exactly what you need to be doing month to month. In Solutions and in your compliance calendar you want to make sure that you have some means to not forget about that calendar. That was always my biggest issue with the spreadsheet, was I would be caught up in my day to day work, and this going out and actually loving it in the spreadsheet so I might not complete some smaller tasks that wasn’t really on my radar at the time.
But I am doing all the talking here, Gray. So you’ve worked with some of our clients as a compliance analyst. What would you say were your biggest challenges as you worked with them?
Gray Houghton: You know, the biggest challenges that I have with the firms I work with is there are so many things that you have to make sure you stay on top of, but they’re not necessarily a daily task. And what happens is you may forget something like your email review, and first thing you know, you have forgotten it for not one month or two months, but six months and then there’s no way to fit that into your schedule. You have a lot of review that needs to happen, and you just don’t have the time to do that. It’s really important that all of the different tasks are in front of you. You cannot forget the things that are not necessarily daily, but there’s some things that just have to be dealt with. State registrations might be another example of that. That’s something that needs to be checked, and if you wait for a year, you may not have picked up on the fact that you have a rep who is doing business you are not aware of, and you didn’t get that done. So that’s something that needs to be examined periodically, systematically, but it’s just not something that’s in front of you.
Polly Cordle: Those are actually really good examples. We have done a lot of cleanup projects as a firm, because it does tend to snowball, and that is one of those things, at least for me, I don’t like to do it daily. I like to have a bunch of stuff to review at once so I can see a big picture of what’s going on, rather than just a fear of what’s going on, rather than just a “What happened today?” kind of picture. So it’s a really good example of something that can snowball, and the state registrations also a good example. We have a monthly review of that in the Solutions system. And I would say, unless your compliance folks are looking at every new account coming in, or unless you have a system that will lock that down state registrations. Particularly on the IA side, where you have the diminimus, and some states will allow you five clients, some States won’t – that can get challenging because you’re watching that number and you’ve got to know when it crosses the line. Now on the BD side, we see a lot more firms that have a system that will work it in. You can’t open the account until that person’s registered in the state, but depending on your system that you’re running, your back-office system, that may not be the case. And so you’ve really got to be watching that closely, because for the broker dealer side, it’s a one client rule. So you want the requirements right where that account is.
So I know you’ve also done a lot of work outside of Solutions. I know you work with some of our clients in Solutions, but you’ve done a lot of work outside of Solutions. What are some of the projects that you’ve worked on outside of Solutions and some of the challenges that you’ve encountered there?
Gray Houghton: Well, another one of the big projects that I do is Trade Reviews. You know, the trade reviews have to be timely, and so this is another thing that some firms require the weekly trade reviews, some firms require monthly trade review. Most firms have some sort of daily trade review and, I’ve worked in all three of those sorts of situations, but it’s an outside system, usually. So it’s somewhere where you have to go into another system, or you’ve got to remember to go to that older system. You kind of have that information in front of you and then you have to transfer that information from whatever trade review system you’re working on to the system of your firm so that they can maintain whatever documentation is necessary. So it’s a multi-step process. It can be a taxing; it can be time consuming.
And again, it’s something that you have to keep in front of you. Just like email review – if you have it set up monthly, and then once it gets away from you, then you’ve got another month in front of you, then again, you have too much work, you don’t have enough time to get to it. So that’s something that’s really good to have a reminder in front of you that has to be processed. You have to have it in front of your face. You’d have to do it and move it to the (inaudible)…
Polly Cordle: So we’ve worked with a lot of trade monitoring systems at Oyster and we actually are getting ready to launch our own trade monitoring system. I’m very excited about it. As a chief compliance officer for a regional firm that was on multiple platforms, trade review was a big, big challenge. We had one platform, no problem. It had an alert system and would alert you when there was a trade that needed to be addressed. But then, for the other four platforms, I had no real alert system. So, I had to either look at trade blotters or run exception reports or review statements or take samplings of accounts and that can get challenging. So what we’re doing with Solutions is, we’re bringing in multiple custodians to one place. And for most of your trade review experience, are you looking trade by trade and account by account? Maybe like on a monthly basis?
Gray Houghton: It’s a mix of that. Some of the platforms do a daily trade alert system, as you’ve talked about, and some of them just do a monthly spreadsheet. Uh, so it’s, the mixture of those, it’s, it’s difficult to keep up with.
Polly Cordle: When we are seeing one client or one household across multiple custodians has always been a trial for me. So what we’re doing, hopefully to resolve that issue for folks, is bring in the multiple custodians, let you look across multiple custodians at one household. So even if Gray has his IRA at one firm and Gray and his wife have an advisory account at another firm platform, I could still bring both of them in and look at the whole picture of that household, which gives me a better view, particularly when it comes to things like concentration on the advisory side. We see a lot of clients who may hold as long as they worked for a company and so they’ll tend to segregate that over in a non-billable account and then keep their other assets in the billable account. But being able to see concentration across that whole picture is important, I think. And there are a number of boards that work that way. It’s not just concentration. So what we’re doing is we’re allowing firms to choose, even look at the account level, the client level, meaning Gray’s IRA and Gray’s individual account combined, or, are you going to look at household level, which would then bring other household members – so Gray’s IRA, his individual account and his joint account. So you can look at the household level. You can look at the client level, you can look at the account level, and we hope that’s going to take a little bit different approach than we’ve seen in most trade review systems. There’s still a daily trade blotter if people want the daily trade blotter, but we liked the idea of bringing in multiple custodians and having it all in one place.
We really liked the idea of being able to pick and choose how your alerts are going to run, and being able to do that yourself without having to go back to a programmer and say, “Hey, turn on this and make it this way.” We’ve made it simple enough that our firms can customize that for themselves. So I think that, hopefully, will be a big difference for some of our firms. Certainly our Solutions firms that are going on to Monitor will have a different way of looking at things.
Polly Cordle: Okay. Well, I think we have run out of time. It’s a podcast. We’re supposed to keep it short, but I think we could talk about what needs to be done for a year, for a very, very long time. We will wrap it up and thank everybody for listening. If you want to learn more about Oyster Consulting and Oyster Solutions, you can go to Oysterllc.com or you can reach out to us at (804) 965-5400.