Monthly Archives: March 2017

Category: Compliance, Creating Future Value, Industry Trends, Smart Sourcing

Now That It’s Done… Building Strong Relationships with Your Compliance Vendor


This blog post is the third in a three-part series about outsourcing compliance operations in today’s complicated financial services environment. This post was adapted from a discussion presented at DST’s 2017 ADVANCE conference.

Nearly every time I talk with an asset manager about outsourcing their compliance operations, I hear some variation of this, “But I’ve heard the conversion can be difficult (or lengthy, or painful, or aggravating.”) For some firms, their perceived fear of the on-boarding process can be so great that it prevents them from even considering an outsourcing relationship.

From my perspective, the service transition isn’t a complicated part of the outsourcing process, but rather an important opportunity to create the foundation for a strong, well-functioning relationship between the asset manager and the vendor. It is through the service transition that you forge standards for governance, collaboration, and communication. During the transition, ideally the client firm learns the jargon used by the vendor, and has plenty of opportunity to ask questions about how the service works. Conversely, during the on-boarding, the vendor firm is ideally deepening their understanding of the culture, and strategic and operational needs of their client. With this knowledge, the vendor firm collaborates with the client to make any necessary adaptations to the service model, without compromising the efficiency that comes with the vendor’s scalability and experience.

Qualities of a Strong Vendor Relationship

If you treat the management of the service transition as the foundation for the on-going management of the vendor relationship, you want the process to offer more than simply following the standard conversion steps (e.g., assess gaps, complete workflow mapping and testing). You also want your work with the vendor firm to mirror the qualities you seek in a long-term, strategic relationship, such as:

  • Engagement of the right people at the right times, ranging from technical and operational experts to the key contact people on both sides of the relationship who will be accountable for operations and oversight during the service transition and long after.
  • Clearly defined roles and timeline that help you know what work is expected of you when, and conversely, what you can expect from your vendor.
  • Clearly defined quality expectations that are measurable, realistic, and achievable.
  • Governance structures that give you and your firm confidence that timelines, milestones, and standards for quality will be achieved. These typically include communication and escalation protocols, as well as documented change control structures.
  • Resources to help you manage oversight like documented policies and procedures, flexible and comprehensive reporting, and dedicated and accessible resources for business continuity planning, data security, and risk management.

Your compliance program is a core part of your overall operation, so you should want a vendor who understands your business goals and helps you stay current on industry issues. When I ask clients what this looks like to them, they say they want a vendor who proactively offers analysis and consultation on industry trends, opportunities to talk with their peers about their best practices and challenging questions, and resources to reasonably help them achieve their oversight and audit goals.

The Oversight Process

I believe the purpose of the operational oversight process is to demonstrate the strength of the vendor in helping the investment company manage risk as it pertains to its delegated responsibilities. Ideally this process is a continuous one, collaboratively undertaken by your firm and your compliance operations partner. In my experience, continuous oversight often includes:

  • Data reports delivered to the client on a mutually agreed upon schedule
  • Face-to-face meetings, at least annually, to help ensure operational processes are aligned with the firm’s strategic needs and expectations
  • Proactive opportunities to discuss the implications of relevant regulatory news and information delivered through email and our secure, online client portal
  • Collaboration on tasks requiring client authorization

At Boston Financial, these regular activities are complemented by the more than 120 client due diligence questionnaires and site visits we execute across our operational group each year, and the 100+ presentations both I and my colleagues in cybersecurity and risk management deliver to client fund boards. Finally, our annual CCO Forum, which serves as a global CCO due diligence meeting, typically engages nearly 200 participants representing 85% of our client firms.

Making the decision to outsource all or a portion of your compliance functions is a serious and strategic process. But it doesn’t have to be difficult. Throughout this series, I’ve shared insights on the process of (a) deciding whether to outsource compliance functions (or not), (b) selecting an outsourcing vendor, and, finally, (c) building strong relationships.

And while there are trends I can point to, each firm’s decision to outsource is unique to their culture, business strategy, and leadership. One of the strengths of our business is our willingness to help both current and potential clients talk through the pros and cons of outsourcing, so they can determine if this is the right time for their firm to engage a vendor in helping with functions like blue sky, trade monitoring, management of unclaimed property, and tax administration. Please reach out to me using the contact link below if you would like to set up a meeting to begin to explore together.

Category: Blue Sky, Compliance

OK, Let’s Save Some Money: The Impact of Consultative Management on Blue Sky Notice Filing Costs


Adapting to changes in notice filing fees charged by states is a mainstream challenge for blue sky administrators. In 2016 alone, we distributed four (4) Compliance Bulletins to our clients, informing them that Alaska, Hawaii, South Dakota, and Vermont were making changes to their notice filing fees.

When changes are made to notice filing fees, in addition to simply posting a broadcast announcement on our secure client portal; we provide projected estimates of the potential financial impact for our clients. Understanding the financial impact helps make it possible for us to identify proactive action our clients can take to minimize the impact to their bottom line.

Consider the example of the State of Hawaii.

On November 30, 2016, we announced that we had noticed that Hawaii’s ten-year tradition of reducing filing fees had come to an end. In fact, Hawaii would instead be doubling their initial and renewal filing fees, effective with the start of the new year. Our announcement included an offer to analyze the potential financial impact to those clients with funds registered for sale in the Aloha State.

With the goal of helping our clients minimize the financial impact of this change, we also offered early filing, in advance of the January 1, 2017 fee increase, to the 25 clients with filings that expired in January or February. Sixty-eight percent (68%) of those clients took advantage of this opportunity, replying with comments like, “Thanks for the heads up on this. Why would we NOT do it?” and “Please proceed. Want to take advantage of savings. Thanks.” With the go-ahead from 17 clients, we processed renewal registrations for 295 portfolios, saving these clients a total of nearly $7,500 in notice filing fees.

In the grand scheme of things, it may not appear to be a significant amount of money, but it is to our clients and their investors. This same strategy, when extrapolated for state registration fee changes occurring multiple times a year, has the potential to offer savings that could make a difference to a fund’s bottom line.


Category: Compliance, Creating Future Value, Industry Trends, Smart Sourcing

To Do or Not to Do: Executing the Decision to Outsource Compliance Operations


This blog post is the second in a three-part series about outsourcing compliance operations in today’s complicated financial services environment.

Disruption seems to be the buzzword sweeping the financial services conference circuit this year. While opinions among industry thought leaders are mixed on whether or not we’re actually experiencing an unprecedented volume of disruptive forces, I think most people can agree that executing a plan to outsource any part of your compliance operations has the potential to create significant organizational anxiety. In fact, PricewaterhouseCoopers’ 2015 Global Operations survey identified that “Changing operations to meet the evolving needs of markets, customers or the business” was identified by 61% of respondents as a disruptive factor in their business.

Based on my more than 30 years of experience in the field, I’ve learned that if a firm has conceptually decided to outsource all or a portion of its compliance operations, managing this anxiety requires three steps. These are thoughtfully and strategically (1) making the case for outsourcing within the firm, (2) deciding with whom the firm will work with to deliver compliance functions, and (3) facilitating the transition from in-house to outsourced compliance operations.

Making the Case for Outsourcing

Unless you have unilateral decision-making authority at your firm, you likely need to work with other people to proceed with the exploration of possibly outsourcing all or a portion of your compliance functions. This might be as easy as sharing your analysis of the strategic ROI of managing compliance functions in-house, or it might be as complicated as needing to develop an internal messaging campaign to highlight the potential benefits of outsourcing.

The benefits frequently cited by our clients include:

  • Enterprise scalability increases efficiency, reduces cost, and mitigates risk through standardizing and streamlining operations.
  • Scalability also makes it possible to access best-in-class, dedicated, and specialist compliance capabilities and regulatory analysts, which in most cases is cost prohibitive to maintain in-house.
  • Access to both technology investment and capabilities, as well as analytics capabilities and thought leadership that they couldn’t otherwise justify on their own.

Specific to Boston Financial, which is part of the DST enterprise, we also hear clients speak of the benefits of consolidating vendors with their TA provider, which has the potential to increase the opportunity for “most favored nation” pricing, and reduces the time, cost, and administrative burden associated with vendor oversight.

You may also need to prepare to manage resistance to change, which can include:

  • Corporate culture (“We’ve always done things this way”)
  • Role preservation (“I’ll lose my job if we outsource _____”)
  • Fear of conversion (“I’ve heard stories about conversions being a nightmare!”)

Identifying potential points of resistance ahead of time will help you prepare for them. In my experience, your strategy for managing resistance should ideally include a plan to engage more people in understanding and advocating for the potential change, to help broaden the range of voices advocating for the exploration. In addition, framing the potential changes within the context of your firm’s mission, legacy, values, and commitment to your investors provides a foundation that can be hard to argue with.

Deciding on a Vendor

What makes a great vendor, one that is a strategic ally in the delivery of your compliance program? Our clients say that they want their BPO vendor to understand their business goals and help the firm stay current on relevant industry issues affecting them. They also want a vendor who offers effective relationship management services, and “is easy to do business with.” Time and time again, I hear clients say they also seek a leader in the field. Few firms want to be an outlier in the delivery of their compliance operations, so working with a firm with a proven track record and a history of setting standards for performance is often a priority.

So how do you assess this? I asked our sales support team, who responds to more than 200 RFPs and due diligence questionnaires every year, to identify themes that come up regularly in compliance RFPs. These include proof of:

  • Firm’s longevity in the field/track record of success
  • Firm’s ownership and affiliates
  • Operational scale (e.g., available efficiencies, best practices based on scope of experience)
  • Staff expertise
  • Technology infrastructure, investment, and scale
  • Cybersecurity protections
  • Business continuity infrastructure
  • Risk management infrastructure (e.g., audit, change control)

The process of vetting potential compliance operations vendors is largely directed by your firm’s vendor acquisition processes. We’ve experienced everything from face-to-face meetings coupled with a financial proposal, to complex, multi-layered process that involves RFPs, site visits, and reference checks.

Facilitating the Transition

Contrary to popular belief, once you’ve decided on a compliance operations vendor, your transition process does not need to be lengthy and painful. In the final post in this series, I’ll share lessons I’ve learned for executing a smooth transition and building a foundation for a strong, and long-term relationship. In the meantime, if you have questions, please share them in the comments section below, or send me a message.


Category: Compliance, Creating Future Value, Industry Trends, Smart Sourcing

To Do or Not To Do: Making the Decision to Outsource Compliance Operations


This blog post is the first in a three-part series about outsourcing compliance operations in today’s complicated financial services environment. This post was adapted from a discussion presented at DST’s 2017 ADVANCE conference.

Is your firm outsourcing any part of your regulatory compliance operations?

If you are, you’re in good company. Thomson Reuters’ 2016 survey on the cost of compliance revealed that 25% of surveyed firms outsource some or all of their compliance functionality. With other flavors of business process outsourcing on the rise within the financial services industry, it’s expected that the percentage of asset managers outsourcing compliance functions will continue to increase over time. In fact, just within the last year at Boston Financial, we’ve seen a 20% jump in the number of clients who have added full-service 22c-2 trade monitoring, Blue Sky Administration, and/or Tax Administration to their service models.

Drivers of Change

What is driving this increase? According to Thomson Reuters, the primary factors compelling the decision to outsource were the need for additional confidence that compliance operations were being managed expertly, and, in parallel, a lack of in-house compliance skills. When we talk with compliance professionals, they say the increase in regulatory pressures is leading to increased risk and cost. For every new regulation, they also need:

  • Staffing expertise to analyze changes and manage operational improvements to help ensure compliance
  • Required technology improvements to accommodate new requirements (e.g., new tools to automate the monitoring of compliance with the DOL fiduciary rule, changes to the recordkeeping system to accommodate money market reform )
  • Staff training and on-going operational delivery

Making the Decision to Outsource

While no one wants to be an outlier in the field of regulatory compliance, outsourcing compliance operations simply because ‘everyone else is doing it’ doesn’t make good business sense.

If I were in the position to analyze my compliance program to determine if/how my firm might want to approach outsourcing, I’d likely ask:

  1. Which regulatory compliance operations are we managing in-house?
  2. How do we know if we are performing these functions well?
  3. Which of these functions is a core business differentiator?
  4. Which of these functions is aligned with my firm’s strategic priorities?
  5. Do any of the following factors negatively influence the cost of my compliance program?
  • Adapting to regulatory reform, including technology development and legal/regulatory analysis
  • Operational quality improvement
  • Maintenance of risk management infrastructure, including disaster recovery capabilities
  • Staffing (e.g., the ability to maintain and evolve the necessary intellectual capital? Depth at skill positions)
  • Training

 Executing the Decision to Outsource

By the time a firm approaches me to talk about their compliance outsourcing options, they’ve already done some sort of risk/reward analysis that has led them to believe that outsourcing all or a portion of their compliance functions may allow them to be more focused on their core business objectives, and/or less distracted by day-to-day noise associated with running compliance operations. When they come to us, they are exploring how to execute their decision to outsource. This stage in the process may involve:

  • Making the case for outsourcing within your firm
  • Deciding who you will work with to deliver your compliance functions
  • Laying the groundwork to facilitate the transition

In the next post in this three-part series, I will share what lessons I’ve learned from my more than 30 years of experience in the field of compliance outsourcing – as both a vendor and the client perspective. In the meantime, if you have questions, please share them in the comments section below, or send me a personal message via my email below.

Category: Compliance, Industry Trends

5 Minutes with Craig Hollis: An interview with Boston Financial’s Chief Compliance Officer


The Chief Compliance Officer of the industry’s largest third party, full-service transfer agent discusses regulatory trends and their impact on asset management firms.

We’re now nearly halfway through the new White House administration’s “First 100 Days.” What is your interpretation of the actions being taken by President Trump in the financial services industry?

Long before the inauguration of our 45th president on January 20, it was clear the new administration would be pro-business. Both President Trump’s appointments and areas of focus (attempting to delay the DOL Fiduciary Rule, rolling back Dodd-Frank —emphasis on banking rules, and reeling in FSOC, in particular their ability to designate SIFIs) during the first 50 days indicate a desire to stimulate the economy and take the handcuffs off business growth through deregulation. Another perspective comes from policy makers, like Acting SEC Chair Michael S. Piwowar, who frame deregulation as an effort to give the “forgotten investor” the opportunity to take bigger financial risks in pursuit of bigger returns.

So what does this mean for the mutual fund industry right now?

Deregulation, like regulation, is a complicated and often lengthy process. While the financial services industry needs to be aware of what’s happening on the regulatory stage, I expect that nothing is going to change overnight. I do expect a significant slowdown in new regulations for a host of reasons that I’ll elaborate on in future blogs.

Instead of watching the dust settle on the regulatory side of the industry, I suggest that the economic realities of our industry make the case for asset managers to focus their attention on strategic business planning. We’re seeing the continued expansion of low cost, passive products, like index funds, which may make the market more accessible to consumers at reduced costs, but aren’t necessarily producing significant revenue for many firms.

In fact, in 2016, actively managed mutual funds lost $360 billion, and the introduction of new actively managed funds was 50 percent lower than in 2015. At the same time, passively managed funds took in $500 billion and ETFs took in even more. These factors are creating significant downward pressure for asset managers to rationalize products and services —in the end most likely leaving many asset managers with a reduced number of products with lower margins.

Through this process of rationalization and reinvention, asset managers are realizing they need to get back to basics by returning to their core mission and creating strong value-add messaging regarding what they do best and how they do it.

We’re also likely to see belt tightening among asset management firms as they strive to make their mutual fund business profitable. This will likely contribute to a continued increase in both industry consolidation and operational outsourcing.

Given these conditions, what are the challenges for you and your team?

It’s business as usual for us.

The DOL Fiduciary Rule is high on our list of priorities, with the April 10 implementation just more than a month away. In collaboration with DST, we’ve completed our due diligence and made all of the required adjustments to policies, procedures, and infrastructure, particularly in regards to the client communication component.

While Boston Financial has never given investment advice to our clients’ shareholders, we’ve enhanced our training and scripting to help ensure our compliance with this component of the Rule is clear as a bell. Asset managers and broker-dealers are well into their own preparations. We’re helping our clients lay the groundwork for the implementation of new share class and fee structures.

Business as usual also means continuous improvement. While the comprehensiveness, quality, and scalability of our suite of compliance solutions put us at the top of the industry, this isn’t enough to meet the set challenges facing asset management firms.

So, innovation is the name of the game for both me and my team. We’re working to develop new products and services that help our clients stay ahead and efficiently and effectively manage their risk and compliance programs.

For example, we’re active on the ICI Blue Sky Committee on making improvements to the standard dealer file so these omnibus sales feeds can meet firms’ need for data transparency. We’re also pilot testing new technologies that use expanded watch list data and behavioral analytics to deliver comprehensive fraud monitoring. These technologies also expand our capacity to create holistic risk portfolios of high-risk individuals and entities that may be interfacing with our client firms.

I know you have a lot on your plate, so I’ll let you get back to work. Thank you for your time Craig.

Any time Gretchen.