• Blog
  • 4 Min Read
  • May 2, 2016

Is Your Firm Prepared for New Regulations?

Written by:
The Clearwater Team

In today’s regulatory environment, it’s more important than ever for investment managers to provide their clients and auditors with complete transparency into the portfolio information, investment metrics, and data supporting their trading decisions.

This is especially relevant in light of the Department of Labor’s (DoL) new regulations that now hold broker dealers to the fiduciary standard when managing clients’ retirement funds. According to this standard, firms must avoid any conflicts of interest by putting the financial interests of their clients ahead of their own. Compliance with these rules will be required by January 2018.

Many of Clearwater’s clients are already aligned with this stringent regulation, as the fiduciary standard that is being extended to broker dealers is already in place for registered investment advisors. There are three best practices that all investment professionals with a fiduciary duty should follow in order to incorporate the increased transparency, accessibility, and monitoring required by these rules, and increase competitive advantages in complying with both new and long-standing regulations.

1. Increase Data Transparency and Accessibility Internally and for Clients

Complying with regulatory guidelines, such as the DoL’s new rules, is only possible when investment data is both transparent and accessible. To provide full transparency, firms first need a comprehensive and consolidated view of all the portfolios they manage, with client data that’s updated and reconciled each day.

It’s not enough for firms to have that increased transparency if they can’t then pass the same level of detail and access to their clients. Increased transparency and access establishes a foundation of trust and a healthy, productive, and mutually beneficial client relationship. In the end, that’s the true goal of investment managers and of regulations such as the DoL’s.

2. Improve Compliance Monitoring

The new fiduciary standard requires that firms keep their clients’ best interest as their top priority. Setting up custom investment guidelines for each portfolio is a key way to accomplish this goal. Specific guidelines should be established and monitored frequently. This prevents a scenario where a particular investment slips outside a client’s guidelines and goes undetected for too long.

3. Streamline Operational Processes

The burden of complying with new regulations generally falls hardest on the operations team. Managing investment data that is accurate and easily accessible is difficult to do, and new rules only compound the work, especially if manual processes are involved. If the work required to keep up with new business and new regulations grows out of hand, firms become vulnerable to human errors and loss of data control. It is when teams are overwhelmed with unscalable processes that inaccuracies and the potential for audit risk can take hold.

Operations teams need an automated solution that provides seamless scalability as business grows and the market changes. A best-in-class investment management system will also be proactively upgraded frequently to meet new client needs, including automatic compliance with emerging regulations.

Overcoming These Challenges

Clearwater’s best-in-class solution for data management, accounting, reporting, compliance and performance monitoring, and other operational tasks provides a competitive advantage to firms who must comply to regulations like the DoL’s new rules.

With Clearwater’s automated data feeds and tri-party reconciliation between custodians, clients’ trading platform, and the Clearwater system, investment data is always up-to-date, validated, and accessible in one integrated system. Clearwater’s customizable reports and dashboards provide visibility into the full breadth of a firm’s investment data, in as much detail as needed. This same data is accessible to end clients through Clearwater’s web-based reporting and customizable statement generator. And, because Clearwater manages the reconciliation process, clients have confidence that their data has been validated by an independent third-party.

Clearwater’s customizable compliance system allows firms to set up specific parameters at the portfolio level. Once established, compliance can be monitored alongside Clearwater’s daily reconciliation and data validation. If a particular investment moves out of compliance, the system sends an alert; this way, firms always know exactly where they stand at all times. And, if compliance is ever questioned, the Clearwater system provides a full audit trail of investment decisions, policies, violations, and resolutions.

Clearwater is also backed by an industry-leading client services team, which provides unlimited system support, as well as input on industry best practices and the changing regulatory landscape.

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