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Come on in and sit back relax, you’re listening to Episode 188 of the WealthTech Today podcast. I’m your host, Craig Iskowitz, founder of Ezra Group Consulting and this podcast features interviews, news and analysis on the trends and best practices all around Wealth Management Technology.
My guest for this episode is Parham Nasseri from InvestorCOM. InvestorCOM is a RegTech firm providing a large range of software for both financial advisors and asset managers. I was interested in three of their products, one is called Compliance Express, which manages record keeping transactions and document delivery from a secure cloud-based platform. Shelf Monitor, which advisors can use to monitor their book of business and be alerted when any investment products held by their clients have significant changes. The third product which I thought was interesting is called Peer Compare, which demonstrates for advisors that they are acting in the best interest of their clients.
If you’re impressed by that and you’re an executive at a broker dealer, an asset manager or an enterprise RIA you should run not walk to a website, EzraGroupllc.com and fill out the Contact Us form on the homepage to meet with us about your technology platform issues. Our experienced team can assist with software vendor evaluations systems integrations, improving operational efficiency, software implementations and a whole lot more. You can take advantage of our free initial consultation offer by going to EzraGroupllc.com. Now, let’s kick this thing off!
Topics Mentioned
- Leveraging Compliance Tech for Scale
- Keeping IRA Rollovers Compliant
- Digital Investor Engagement
- Reducing Costs of Recommended Products
- Comparative Investment Analysis Ratings
- Driving Best Interest Recommendations
- SEC Audits Are a Breeze with Compliance Express
- Automating Regulatory Document Management
Episode Transcript
Craig: I’m happy to introduce our next guest on the program. It is Parham Nasseri VP of Product and Regulatory Strategy from InvestorCom. Parham, welcome.
Parham: Great to be here, Craig. Thanks for having me.
Craig: I’m glad you can make it on this beautiful day in New Jersey. Where are you calling it from?
Parham: Beautiful Toronto, Canada.
Craig: I love Toronto. I haven’t been there in a while. How are things up there?
Parham: The leaps are not doing too well, but we have a firm belief that this is our year.
Craig: Oh, we’re talking hockey. We can talk hockey a bit.
Parham: Let’s not talk hockey. We’re down three one at the moment.
Craig: It’s not likely scenario of coming back, but you never know. Stranger things have happened. Good. It could happen. All right. Please give us the 30 second elevator pitch for InvestorCom.
Parham: All right. Craig, thanks for having me, as well as InvestorCom on your show. InvestorCom is the leading provider of regulatory compliance software solutions for wealth and asset managers across Canada and the US. Going back to your point about 30 seconds, our motto is that compliance can be turned into a strategic advantage for wealth and asset managers if they, it’s embraced through a digital application. We’ll talk a lot more about that today.
Leveraging Compliance Tech for Scale
Craig: We like that. We like looking for strategic advantages in areas of the business that are normally not. But for example, compliance is a necessary evil when you shouldn’t look at it that way. You should look at it as something to give yourself an advantage and help your business scale.
Parham: Absolutely. You know what, sometimes somewhat feels like a bit of a calling because Craig, I spent little bit over 12 years, maybe 13 years at an investment regulatory firm in Canada. I headed up a team that the data analysis on investigative issues. The same problems, the same constant issues, would present themselves in our wealth sector. Suitability fee or fees being overcharged.
Now you layer on to onto that. I’ll say additional regulatory requirements or burdens that say, look, you have to act in Craig’s best interest. What does that mean? How do you prove that? Given the fact that regulators and client complaints can be a retrospective exercise that could happen three years from now. We believe there is huge value in making that process, that process of being compliant simple easy to adopt for financial professionals and firms, and allow compliance or leverage compliance as a strategic lever for the organization. Good compliance is good business.
Keeping IRA Rollovers Compliant
Craig: I believe that’s the case. And why not use technology to do that and support it and stop doing it manually? Speaking of manual work, let’s talk about rollovers, that’s a big compliance headache for advisors. How does InvestorCom help advisors manage rollovers and stay compliant?
Parham: Craig, I want to say, rollovers or advice, or recommendations related to rollovers are a huge growth opportunity for financial advisors. Most of the working class their savings are put together or accumulated through employer sponsor plans. As a financial advisor, whether you’re independent or working at a big firm that presents a huge asset accumulation opportunity. It’s projected actually that there’s a study done on this. It’s projected that in the next five years, there’s approximately 800 billion dollars of assets that are going to roll out of employer sponsored plans and into IRAs.
Craig: $800 billion, you said?
Parham: $800 billion.
Craig: In the next five years?
Parham: In the next five years. I think in 2021 the same source suggests that there was around $700 billion of assets that rolled over. Just think about it conceptually. There’s going to be secular shifts in the generational wealth transfer. A lot of folks retiring and thinking, I want to have a higher degree of control over my assets.
You combine that with the great resignation period that we just went through. A lot of folks switching jobs. Now, there’s assets that are sitting in former employer’s accounts. There is value as a financial advisor, if you’re going to coach clients and give them advice to consolidate those assets. Rollovers are a win-win for the investor. It should be a win-win for the financial advisor as well.
Craig: Now, there is a “gotcha” there, because typically assets in employer sponsor plans are lower fee scenarios than circumstances. Why? Because employer sponsor plans have some scale. Now, there is going to be a fee imbalance, and majority of times, when you roll out of employer sponsor plans into an IRA. How do you do that in the most beneficial manner possible that’s also compliant?
Parham: What we’ve developed at InvestorCom is a very intuitive process to be able to engage the investor. Assess their level of need around different areas of service. Hey, how important is financial planning to you, Craig? How important is periodic rebalancing and having control over your assets, as well as having exposure to assets that your employer sponsor plan doesn’t allow you to have? Give me a score. To be able to kind of do that analysis, document it, in addition to doing the fee analysis.
The fee analysis is particularly important as well, because investors are going to pay in the vast majority of times higher fees when assets are rolled over. But it’s not to say that that’s a bad decision.It may be suitable and appropriate for some investors to pay higher fees and get additional services. Our application brings that value proposition to life. It documents it digitally, natively, and it allows firms to provide supervisory services on top of that to say, Hey, this recommendation may not have been in Craig’s best interest. Let’s take a quick look at it.
When we look at that immense growth opportunity ahead of the industry and you combine that with regulatory scrutiny in a magnifying lens. Whether it’s the Department of Labor, FINRA, or the SEC, everyone’s looking at that conflict. Well, why did you recommend this rollover for Craig when the fees were going to go up? If you can confidently say, well, I made that recommendation three years ago, here’s my artifact. Here are the data points. Here’s the supervisory process at my firm. Believe you’ll be in a great position, and our application puts that complex exercise and digitizes it in the most intuitive manner.
Digital Investor Engagement
Craig: I want to go back to something you said about engaging investors around different areas of service. How do you do that? Is it a survey? Is that on mobile? How are the investors engaged?
Parham: The investors are engaged through, you know, our digital application and what they do is they use, call it service proposition for each specific firm. Let me give you an example to shed light on that. One of our clients offers portfolios that follow Biblical Responsible Investing (BRI) and it is a value proposition for them. Using InvestorCOM any advisor can make that a value proposition when assessing whether a rollover is appropriate, and suitable in the investor’s best interest.
Advisors can now ask, “how important is Biblical Responsible investing to you on a scale of 1 to 10?” What that does is it moves away from the traditional check the box exercise, which manual forms do today.
Well, Craig said he wanted these additional services or these additional fees. Well, it actually allows you to go beyond that, check the box and actually numerate your desired level of the investor’s level of need. Think about what that does on multiple levels. Our application also plays these data points back to the investor as part of making that recommendation. Think about it from a compliance as well as this retrospective exercise that needs to happen. You can now have the investor’s input dynamically inputted into the application, whether it’s on mobile or a browser. Capture those data points that go beyond the check the box to truly get the client’s desires with respect to whatever degree of service that firm or that financial professional wants to bring to the app.
Craig: You have both a web-based and a mobile app for investors to answer these questions?
Parham: Correct.
Craig: That gives some flexibility, and that sounds like a very different value prop for you. Most compliance firms don’t offer that. They’re just running reports and monitoring, but you’re reaching out to the clients, building more of a client engagement tool for advisors or data gathering tool, then feeding that into your compliance process.
Parham: It goes back to what I said earlier. To be able to provide value for financial advisors, compliance needs to do something more than what it’s traditionally done, which is, Hey, you can’t do X, you can’t do Y. Our model is for compliance to be a pillar for growth.
Maybe there is an opportunity to embrace that advisor’s desktop by saying that the firm’s compliance officers have blessed this application. They want you to use it because it provides them the transparency and the level of data they need that goes beyond their delta or their reality, which is the age old scribbles on a sticky note left somewhere in the office. Notes made in a CRM disparate from whether it’s Par or Craig CRM, for instance. I think our thesis is let’s bring legitimacy to the compliance profession and digitize these data points to support the financial professional in growing their business.
Reducing Costs of Recommended Products
Craig: You had sent me some statistics from some recent studies you conducted. Can you talk about advisors who are using your peer compare tool and your Reg BI case study?
Parham: Thanks for bringing that up, Craig. This is an “aha” moment for us. We have a belief system, as you can probably tell through my passion and level of interest in this particular area. Look, there are principles underlying the regulatory requirements. The principle that the study targets is within the care obligation, whether it’s an investment advisor, or a broker dealer, there is a requirement to consider reasonable alternatives at the time of the recommendation. Compare costs and reasonably available alternatives. It’s a mouthful. How do you do that? How do you do that in a repeatable way, whether it’s advisor number one, advisor number 5,000 at a firm in a repeatable way. Again, this is where we’ve tackled that problem from how do we foster support? How do we foster growth for the financial professional?
What we’ve done with this new application is we’ve made it really easy for the advisor to put in a taker, have their available alternatives, improve their decisions. What does that mean? The case study is the result or the proof in the pudding. We looked at one of our clients who first adopted our technology, I want to say day zero of regulation, best interest implementation deadline, which was June, 2020. Accordingly, we have two years of recommendation data.
When we looked at the study across that time period time series, what we observed was in that particular firms, now it’s one firm. This ain’t an academic exercise, but what we leaned off the data was this correct, fascinating output. You would see that comparative application that we have through doing that exercise, forget about our application, but doing that comparative exercise on, Hey, should I recommend Franklin Templeton or Fidelity’s product? If I want asset allocation exposure for my investors? That comparative exercise improved outcomes, improved the quality of recommendations. What did it say in a nutshell? The relative cost of products recommended over that two-year period decreased by over 30%. That is material. The reason I say that is 30% ends up meaning more money in your investor’s pockets. What does that do? It improves the dynamic between the advisor and their investor.
Craig: Parham, let me interject. How did that happen? How did the average cost of recommendations decrease by 30%?
Parham: Let me go back to the traditional heuristics in our industry. What the regulatory requirements to have done is said, look, we get that you might have your investor’s best interest at heart, but we believe you need to do this comparative exercise at the time of the recommendation. Is Tylenol better or is Advil better for Craig? Well, you got to compare the two. By creating a framework, a repeatable framework that does that very quickly, what we’ve seen is the quality of recommendations across products in the mutual fund, in the ETF category, the cost of those recommendations have gradually decreased by using our application. Forget about our application by doing this comparative analysis. I go in, I put in a ticker and says, look, I’m going to recommend a Goldman Sachs balanced product. Well, it gives me 10-15 other alternatives very quickly and says, look, your first election it’s relatively strong. Or it could say, look, your first election is not as necessarily a straw. We’ve got a proprietary data point very similar to Morningstar’s five-star rating. I’d say it’s a little bit more nuanced and brings competitively stronger products to the forefront. As advisors have embraced our applications, the quality of those recommendations have improved over time.
Comparative Investment Analysis Ratings
Craig: You say you have a rating system like Morningstar. What are you rating exactly?
Parham: This is going to get academic real quickly. What we do is we allow the firm to design the pillars of competitive analysis or comparative strength across their firm. That’s a slightly nuanced shift in comparing to the Morningstar’s five-star rating. Morningstar decides what is a five-star rating? What classifies as a four star versus a five star? If we take the control out of the data provider and give it to the firm, because firm A, may have a different line of business, different type of practice, they may want to compare to LB 1 fees. Some may not want compare to LB one fees. Some may want to compare funds at a fund level. Some may want to go into the individual share classes. Our technology gives a firm and the compliance officers an ability to test that and say, design the guardrails around your practice.
A typical peer rating across our clients, Craig will leverage three key pillars, cost, risk, return. You can have 10 data points that go into a peer rating. You can have three data points that go into that peer rating. But what it does is it says, look out of the thousands of thousands of products that are out there, give me a peer rating. A singular data point that says, Hey, compared to all the asset allocation products that are available at my firm, how does this one selection? The product I looked up, stack up relative to them. What does that do for the advisor? What does that do for the firm? What does that do for the investor? It gives them this connective tissue around the quality of products that are being recommended,
Craig: And they can tweak those data points?
Parham: That’s actually our competitive advantage because look, firms in the driver’s seat, you want to tweak and adapt your product based on usage. Adapt a peer rating based on how you’re seeing your financial professionals react to it? Go ahead. That’s the new software SAS model, right? Give your firms the control to be able to tweak the product.
Driving Best Interest Recommendations
Craig: Thanks. More about how your product is used and more about how your clients are using or interacting with their compliance processes. How are they making best interest recommendations?
Parham: Look, the best interest recommendation is it’s a bit of a philosophical exercise. I’ll try not to be too theoretical here, Craig, but what we had in our industry was the suitability requirement. For years and years and years. Suitability foundationally said, look, Craig’s risk tolerance investment objectives, the list goes on unique circumstances, whether you’re using an IPS or a KYC, former and CAF, it has to match the underlying investments. The best interest principle went beyond that and said, look, the financial professional is the financial profession and the advice profession — there’s a higher calling here. You’re impacting people’s livelihoods and that there needs to be a reasonable basis as part of making those recommendations. It needs to go beyond that simple matching exercise.
Craig’s risk tolerance is medium risk. Let me find medium risk products. It goes beyond that and says, is that medium risk product in Craig’s best interest? Is that a high risk product in Craig’s best interest, and is there a reasonable basis for the financial professional to recommend that product?
Now, I’m not a lawyer. I might sound like one having worked on the other side of the profession for longer than a decade. But what that entails is, there needs to be some proof in the pudding. What that means is, as part of making that recommendation, how do I know the product I’ve put out there is the best in class product for Craig? It may be suitable, but what if I need to go beyond that and assess, is this the most cost appropriate product, VA Mutual fund, ETF, whatever that’s available to me to recommend to Craig. That’s where the best interest principle has said, look, we need you the trusted financial professional to show some diligence skill, and care.
SEC Audits Are a Breeze with Compliance Express
Craig: Let me jump to different area. You’ve got a product called Compliance Express. One thing we find with a lot of our advisory clients, we work with some RAIs that are a billion up usually as well as broker dealers, tamps asset managers, and on their wealth management side, but usually minimum of a billion on the RA side. They always have a problem getting ready for audits or not that necessarily they’re getting audited, but being ready in case they get audited and knowing that they’re ready. How does this tool do that and help firms prepare for a potential audit?
Parham: Craig, thank you for asking that. I think, I’d say if somebody was to look at InvestorCom from a 10,000-foot level. I want Compliance Express to stand out because it’s the purpose behind it and the pain we’ve gone through in designing our platform is centered around being able to prove documentation. Compliance Express doesn’t just — so let me back up.
InvestorCom’s platform, don’t just leave the financial advisor at, Hey, you’ve generated a proposal. You’ve compared reason believable alternatives. You’ve recommended a rollover; you’ve opened an account advisory versus brokerage. It houses all of those recommendations that are being made to their clients. So then when it comes to that exercise where a firm, whether it’s an advisory or broker dealer once every three years, or once in every 11 years for the advisory side of the business, goes through an SEC audit, state audit. All of the evidence is natively housed in Compliance Express.
Why that’s important is, again, go back to my story and how I started this. When I worked on the other side of the fence. When there is no evidence, guess where that person who’s in that adjudication role is going to lean towards. Hey, financial professional, you had to have some form of documentation around these recommendations. You don’t have any, and guess where that’s going to lean. It’s going to lean way more towards the investors side of the fence.
We have gone through immense amount of pain to make sure we can provide technology that makes it easy to document the evidence. It’s a click. It’s a click away. It can integrate into CRMs, it can integrate into, call it whatever other backend archives exist, and it intuitively just has all that information. Whether it’s a firm’s compliance officer or the advisor themselves who wants to come in and say, look, in 2021, I made a recommendation to Craig to roll his assets over. I want to go and find that document, and then the corresponding data points, boom, it’s there.
Craig: Is that a document management solution?
Parham: It’s a document warehouse solution. Look, let me back up on a couple of things. One of our friends in the industry his ears may be ringing now David Portus. He’s a litigator and he’s used this term with me and I love it. He’s called it “regulatory archeology”. In the absence of a centralized application that houses all these documents, all of these recommendations. These are recommendations that impact people’s lives. It’s a big deal. It’s some people’s retirements.
If a firm or a financial advisor doesn’t have access to those documentations, doesn’t have access to evidencing all of that fairly quickly. What does the firm have to do? They have to retain counsel. Guess what, how much counsel costs? Going back and concocting emails to clients, the term I was looking for an Excel formula analogy, bringing in different disparate data points.
Hey, what do you have in your CRM? What do you have in your email correspondences to the client and being able to concoct a story there. Why do that when you can natively capture all those evidence pieces altogether and be able to say, look, here are the recommendations they made to my clients going back three years, seven years, whatever.
Automating Regulatory Document Management
Craig: One final question, we’re running out of time. I just wanted talk about some of your other products. One is publisher and one is DOX. Publisher says it automates regulatory document publishing requirements. Do those documents also go into the compliance express and the dox is for DOX Marketing Fulfillment? Do those three applications integrate?
Parham: They do integrate. Actually, let me just correct that statement. Publishers for asset managers. I’m talking about the fund companies who have hundreds upon hundreds of funds.
Craig: Okay. That’s why I was questioning that.
Parham: Yeah. Asset managers, one of their Achilles heels is, look, how do I generate these ongoing disclosure obligations these documents, whether it’s a financial statement, semi-annual investors’, shareholder disclosures. Those are complex documents that are repeatable, whether you’re looking at fund A, B, C, or X, Y, Z. What we have done is we’ve created a module or an application that it’s a simple ETL process that generates documents and can actually deliver it directly to the end investors. Give me firm BlackRock, give me all of your data points. We will every quarter generate these documents.
Craig: That’s cool.
Parham: Make sure your investors, Craig, amongst others get these data points.
Craig: What about Doc — so as Docs looks like it’s also for asset managers for their marketing materials.
Parham: It could be asset managers or investment dealers. Broker dealers who want to have a centralized solution for disseminating approved marketing content. One of the challenges, especially with the marketing rule, is you need to have some controls in your practice around delivering digital assets, digital delivering marketing material. Now with DOX, you can do that. As a firm you can upload all your documents or integrate any document you want into that application, and make sure your advisors are sending approved content. Not going off on their own and sending marketing content that may not be approved.
Craig: Nobody wants that. Parham, we’re out of time. This really flew by. Thanks so much for sharing everything about you investorCom and your products and capabilities. Can you tell us where we can find more information about InvestorCom?
Parham: Absolutely. We’re live and present on LinkedIn, Twitter, investorcom.com is our website. You can reach out to Parham Nasseri on LinkedIn and I will happily take a call from anyone. Greg, thank you. I’ve been a fan for a long time and I appreciate what you do for our Profession
Craig: Thanks. Appreciate it. Just so everyone knows, it’s investorcom.com, not investor.com, but investorcom.com. Please go check them out. Parham thanks for being in the program.
Parham: Thanks, Craig.
