Embedding compliance into digital advice:
An integrated solution can help prepare for Reg BI

November 2019

How can banks apply compliance controls and procedures — including the upcoming Regulation Best Interest (Reg BI) — without compromising the overall client experience? Jemstep believes this requires a compliance framework with automated, rule-based business logic configured by your compliance team. Centering this framework on goal-based investing creates an engaging client experience while meeting investment suitability and other regulatory requirements, consistently and efficiently.

A configurable platform allows banks to implement their compliance posture from end to end, including support of Reg BI:

  • Goal-specific risk profiling to address clientspecific suitabilityClient profile data (financial objectives, liquidity needs, tax status, risk tolerance and other factors) are used to map the client to a recommended portfolio.
  • Professionally managed investment portfolios to address reasonable‐basis suitability – Low cost, broadly diversified target-risk portfolios account for factors such as liquidity and transaction costs.
  • Disclosures of material facts regarding products and services – Site-wide information and disclosures are made available to clients before the account opening.
  • Initial and ongoing rule-based trading and rebalancing that supports quantitative suitability – Completed regularly and automatically, along with annual suitability alerts and flows.

“The only way to make it better, faster, cheaper and safer is to deploy technology to
bring the rule books back under the control of the people they are relevant to.”1  

- “Taming the High Costs of Compliance with Tech,” Forbes Magazine. 

The platform should help banks translate these compliance challenges into opportunities, to automate rule-based compliance processes, solve for many compliance headaches, and create an up-to-date audit trail. With more than 10 years of experience in addressing compliance issues, Jemstep has identified six key areas that help to meet banks’ regulatory and compliance needs, while delivering a compelling client experience.

  1. Comprehensive risk profile: With a goal-based flow and a detailed risk-tolerance questionnaire, banks can efficiently assess client needs and demonstrate investment portfolio suitability. At the sweet spot of automation, banks obtain enough information and provide guidance that satisfies regulatory requirements while minimizing client abandonment rates. The Jemstep platform has a configurable client questionnaire that gathers information on a client’s total risk profile per goal, by incorporating questions that address risk capability, risk tolerance, loss aversion, and risk perspective. This results in a risk score per goal that is used to map to a portfolio, based on the bank’s approved suitability rules. The embedded business logic identifies contradictory answers and provides online guidance for resolving the conflict before moving ahead. Integrations send the data straight through to the custodian and to the bank’s client relationship management (CRM) system for easy audit access.
  2. Balanced approach to risk scores: Asking the right questions is only part of the client suitability puzzle. How you score their responses and map them to the appropriate portfolio is crucial. When clients express an extremely low (or extremely high) willingness or capacity to take on risk, the system logic must incorporate these responses and score them appropriately, in order to guide clients to a more balanced risk profile. Consider these two outlier scenarios: Swing-for-the-fences Granny and Nervous Nellie tech exec. Swing-for-the-fences Granny plans to retire within a year, has no other sources of income, and wants to invest in equities to increase her expected return. Her capacity to take risk is very low, but her overall attitude toward risk is very high. On the flip side, Nervous Nellie is a financially secure technology executive with decades ahead to save and invest, but she is very conservative. Her capacity to take risk is very high, but her overall attitude toward risk is very low. Without conducting a comprehensive risk assessment — by equally weighting risk capacity and risk attitude — they could both end up in a 60/40 stock/bond portfolio, even though it’s likely not suitable for either one. Just as a quality advisor would do, a digital advice solution should not only ask questions about capacity for risk and attitude toward risk, but also address and appropriately handle extreme responses like these two scenarios.
  3. Suitable investment recommendations: The investment solution set must be well-constructed, well-documented, cost-efficient, appropriate for the client (based on their profile, including the account size), and in compliance with regulatory requirements (Reg BI, FINRA suitability, etc.). The digital advice platform logic should remind clients to update their investment profile or automatically trigger required risk profile updates for annual suitability and make the appropriate portfolio adjustments. Regularly encouraging clients to update their online information, or to contact the firm if their financial situation or investment objectives change, helps to maintain suitability requirements over time while building a deeper relationship with clients.
  4. Paperless audit trail: Digital automation enables a rule-based process, solves for many compliance headaches, and creates an up-to-date audit trail. When the initial sign-up is complete, or when an existing client makes any update to their goal profile, a snapshot of the client’s most recent goal and suitability information can be immediately uploaded to the bank’s custodian. This establishes a comprehensive audit trail. Every update is recorded and time-stamped. Integrating the platform with the bank’s CRM system makes suitability and profile information available for compliance purposes. Integration also enables data analytics and gives advisors the opportunity to find inflection points that present opportunities for deeper engagement.
  5. KYC and AML reviews and approvals: Know-your-client (KYC) and anti-money-laundering (AML) reviews and approvals are part of a seamless process for obtaining, processing, and storing client information. When the digital advice platform is integrated with the bank’s systems and third-party providers, configurable forms and processes support the overall compliance practices. Forms can be prepopulated with existing account data, and new or updated information can be injected back into the bank’s systems to support KYC and AML processes.
  6. Curated for the digital environment: Your digital platform should provide an engaging and personalized experience, with language and flows that are clear, intuitive, and easy to follow. Visual tools are informative and motivating. This also means taking into account mobile responsiveness and guidelines for the American Disability Act (ADA), among other factors. Clients can enroll directly or advisors can help them complete the enrollment. Providing practical context and links to more information develops knowledge and enriches the client experience. 

    Bringing compliance into the digital age 
    Digitizing wealth management can help to add efficiencies, reduce ongoing costs to serve clients, improve the client experience, and increase retention rates. It may also lead to a broad improvement of compliance effectiveness. Embedding your bank’s compliance rules and functions within the digital solution can help maintain the bank’s overall compliance posture, meet specific requirements such as Reg BI, and facilitate readiness to address ongoing regulatory changes.


1. Source: Tom Groenfeldt, “Taming the High Costs of Compliance with Tech,” Forbes Magazine, March 22, 2018.
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Jemstep is a platform that can be configured to help your firm address its regulatory requirements, but does not take liability for your compliance. Please consult your firm for information regarding your compliance responsibilities and requirements.


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