Joot discusses FinTech with the Institute for Innovation Development - Part 2

Note. If you didn’t get a chance to read our FinTech-partnership article that was published by the Institute for Innovation Development (IID), we recommend you start there and then continue on. 

Digital background with infographs and business conceptsIn last week’s blog post, we gave you some more color on our discussion with the IID on how financial advisers should partner with FinTech. We discussed how we work with clients to identify their real compliance problems and how our clients are managing regulatory compliance in today’s environment. We also provided some examples of recent partnerships that we’ve had with clients. We know we’re biased, but we think these examples show how Joot is more than just a FinTech firm, it’s a FinTech partner for advisers just like you. 

Today, we discuss why more advisers don’t partner with FinTech, the current shortcomings of existing solutions, and some advice on how should approach vendor management. Enjoy!


We see adviser partnering with trading or engagement platforms and front-end products and services, but not compliance, where it can be a gamechanger like in other areas. As you’ve noted, compliance is more than working off a spreadsheet and email. While it can be hard to picture that FinTech can take different forms like compliance, even that area of operations can be benefited by tech. Why don’t more advisers consider FinTech in the compliance space? 

Too many advisers think of compliance as simply the cost of doing business, it has a negative connotation. advisers know that a compliance violation can hurt their business, but they don’t appreciate how it can help their business. As a result, they commit just enough resources to it to maintain compliance. As I noted earlier, we want advisers to realize that compliance, like every other part of their business, is essential and can benefit from technology, which is a great solution for them. Technology can improve the scope and security of the compliance program while also freeing the advisor to focus more on its clients. FinTech is not just for front office operations, it can support back office operations too, by driving greater efficiency and handling repetitive, time-consuming tasks. This means people can focus on higher skilled activities that require judgment, exception handling, and high touch. In other words, finding the right technology solutions for compliance can indirectly grow and advisor’s business. Plus, it frees advisers to focus on what they love, which is managing assets and taking care of their clients.

Another reason that adviser’s don’t focus more on compliance is that it’s a proxy for the SEC and government regulation. When advisers think of compliance, they see government-created speed bumps are roadblocks. As business owners, advisor’s hate red-tape and they certainly don’t want to embrace it. Again, we want to change this perspective, we view compliance as a method of ensuring the safety and stability of the business and client assets. A good compliance program acts as an insurance policy for advisers and their clients; it can also increase the trust that clients and employees have in the advisor. We’ve seen the damage that weak compliance can have on our industry. Look at Bernie Madoff, he didn’t just damage his firm, he hurt the entire industry. Every time there is a fraud in our industry it weakens the public’s trust in advisers, and the government imposes more restrictions. Compliance is the counterforce to fraud and therefore can limit government regulation in the long term.


What benefits do you see that haven’t materialized yet? What direction are you going with your R&D to keep your FinTech solution in step with ongoing regulatory compliance?

We thought advisors would flock to technology-based compliance solutions and love the opportunity to help develop those solutions, but that’s not the case. It is difficult to get an advisor to commit to thinking expansively about compliance, mostly because they are focused on too many other areas of their business. Because it’s been harder to establish collaborative relationships with advisors, we’ve slowed the pace of our technology development. We don’t want to create products that advisers are not ready to adopt.

While we started out focused on the easiest areas of compliance (e.g., SEC filings, compliance calendars, document management), our R&D has shifted to more complex areas of compliance like developing and testing policies, performing risk assessments, and producing a comprehensive annual review. These are not easy areas to address with technology because there is a level of analysis needed that cannot be performed by machines yet. Algorithms needed huge amounts of data and time to work, and right now there isn’t enough of compliance-based data to feed machine learning, so humans are still needed to manage these areas of compliance. As a result, we’re committed to automating part of the process and working with our clients on the assessment. As the date and technology evolve, we will continue to automate more of the process in conjunction with our clients.

This type of human-machine interaction is the next evolution of FinTech. People used to think that technology would simply replace humans, but we’re learning that compliance services can also benefit from technology because technology cannot replace the abstract, creative thinking process that we excel at. Today, people on the cutting-edge of technology develop understand that sometimes a combination of people and technology is necessary.


Any final suggestions or thoughts you would like to share with advisors?

We understand that many advisors are worried about or suffering from vendor fatigue. No one wants to have a ton of vendors to manage, especially because the SEC has said that the advisor must perform vendor management on all critical vendors. Our advice when advisors are looking to for a technology partner is to look for one that is focused on investment advisers and all areas of their SEC compliance program. Don’t settle for piecemeal solutions or vendors that are only looking to sell you certain products. Look for a partner that wants to grow with you and that can meet all your compliance needs, whether its technology or technology plus services. 

FinTech has to become an extension of the advisor, which means the technology must come with support. The vendor also needs to be committed to the partnership and not just looking to grow upstream. In other words, if you’re a small or middle-sized advisor, don’t select a partner that is simply looking to use you as a test case to develop its software sot that it can sell to large advisors. There is no one-size-fits-all solution in our industry. Our experience has shown that while the regulatory rules are similar for smaller and larger advisors, the technology needed in the market segments are different. Part of this is because of the existing resources at advisors of different size and the other part is the complexity of the advisor’s business. A 10-person retail advisor firm with three offices will not have the same needs as a 1,000+ person advisory firms with offices around the globe and every product imaginable.  Our target market is the small and middle market. We’re committed to that space and looking for compliance solutions to meet your needs.

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