Orion Advisor Services on Tuesday launched Compass, a new compliance application for advisors that lives on Orion’s Connect dashboard for users. The application—free to Orion users—allows advisors to prepare for regulatory exams and make those exams quicker and more efficient.
The first of the two tools available on Compass are:
- Audit, which allows firms to run mock audits and automate information retrieval for SEC and state regulatory exams, and
- Verify, an anti-money laundering (AML) screening service that integrates with the Risk Solutions service from the legal research and data firm LexisNexis.
Orion’s general counsel, Kylee Beach, said in an interview on Wednesday that the impetus for Compass came from its 1,400 advisory firm users who were “looking to navigate a fairly complex regulatory environment” in which the SEC, state regulators and FINRA are “ramping up their exam schedules.”
The services are not meant to replace firm chief compliance officers (CCOs) or external compliance consultants, Beach said. Rather, the intent is to make sure RIA firms’ CCOs are both aware of their firm’s compliance risks and then to more efficiently monitor those risks.
Beach says there are many reasons for a firm to monitor risk, “not just from a regulatory perspective but to protect your firm; you can open yourself up to liability if you can’t identify any violations” you may have first.
Beach points out that as an attorney she’s spent her career focusing on regulatory matters and was herself a CCO, “so I’ve worn that hat.” Instead of replacing the compliance officer or a compliance consultant, Orion’s tools are designed to “leverage our data” in the Orion system so advisors are not only “prepared for regulatory exam requests as they come up” but then can respond to those requests “quickly instead of spending weeks of sleepless nights” to find and deliver the information requested by examiners.
(See Melanie Waddell’s report on the SEC’s 2018 exam priorities, which include anti-money laundering.)
While Beach admitted that there are existing tools for RIA compliance officers, CCOs often “have to go to multiple third parties” to use those tools and mine the firms’ data, which she pointed out “can be frustrating” and make their compliance “lives even more complicated.” Because of the “depths of information that Orion tracks, it allows us to bring that data together” more efficiently for RIAs.
One example of how advisors could use the Orion tools, according to Beach: “Many times the SEC might come in and ask for a list of canceled client accounts. That data would all be in Orion: including when the client became inactive, and countless other data points” tracking the advisor’s relationship with those clients.
Regarding the mock audit tool, Beach said that one of the benefits that Orion users report is that they can create a library of information that would be helpful not just in the event of an exam but also for internal audits. Doing so allows users to answer questions like “’What is my ability to produce this information? Do I see any issues, any unidentified risks, in the information that’s coming back to me?’” when conducting those mock audits.
FINRA, AML and More Tools in the Pipeline
But why reference FINRA audits? Isn’t Orion a portfolio accounting tool used by RIAs? “Our primary customer base is RIAs,” said Beach, “but we’re seeing more of our RIAs with BD affiliations.”
And why the anti-money laundering tool? While broker-dealers are required to follow AML regulations, aren’t RIAs exempt from those rules?
She admits that AML rules are “not statutorily required” for RIAs, but from a “risk control perspective, if there’s an AML issue with a client you may get stuck in the middle,” so it’s best to proactively “avoid that issue.” She also says that her reading of the regulatory environment suggests there is a “realistic expectation that it’s only a matter of time” before AML rules are imposed on RIAs, so many firms “want to incorporate it into their procedures” now.
Additional features in the pipeline this year for the Compass app include a compliance tool called Test that Beach says will “go beyond the audit scenario to apply targeted testing and monitoring” on a daily basis. As an example, Beach hypothesizes an end-client’s account that has been “assigned an incorrect portfolio strategy, which might suggest a trading issue” with that account, which could be discovered through this “targeted, customized compliance monitoring.”
Another tool in development, called Inform, will allow firms to track firm employees’ compliance with an RIA firm’s code of ethics. Under the Investment Advisers Act an advisory firm has the responsibility to monitor their employees trading to, for example, identify any instances of front running. “Some do it manually” now, reports Beach, but “we’re looking to bring it into Orion” so that process can be automated.
Current Orion users will eventually see another change. Beach explains that Orion has been providing assistance to users in compliance issues like filing Forms ADV through what is now called the “compliance corner” app on the Connect platforms. “All of that information will now be available through Compass,” says Beach. “We’ll be retiring the compliance corner.”