Conquering Compliance: Creating Marketing Processes that Salespeople Will Follow

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Terry McDougall

Listen to our guest, Stephen Pope, discuss how asset managers can create compliant marketing and sales processes that are also extremely efficient.

In this episode, we are joined by Stephen Pope, CEO and co-Founder of Red Oak Compliance. Stephen offers us some insight into the current issues and challenges he’s seeing with the marketing and sales process at asset management firms today. He explains how firms are creating marketing approval processes that salespeople will actually follow, and offers best practices for improving time-to-market of sales materials, such as a three-tier risk workflow system. Red Oak helps financial services companies improve their regulatory advertising review workflow processes. Their industry-leading web-based SaaS application, Admaster, helps firms get their materials approved and to market in less time, reduce regulatory risk, and improve efficiency. We hope you takeaway some useful ideas from this episode. Thank you for listening and enjoy the show!


The following is a transcription of the podcast:

Emilie:

Here with us today is Stephen Pope. He is VP and one of the founders at Red Oak Compliance. We were first introduced through a mutual client who wanted to integrate our Synthesis FlightDeck pitchbook automation solution with their Red Oak Compliance system. Our client is a large global asset manager, and it’s been a really great success story for them.

Stephen, can you tell us a little bit about you, your background, and how Red Oak Compliance came to be?

Stephen:

Yeah, thanks Emilie. Yeah, Red Oak was started to do consulting for financial service firms, and we quickly ended up becoming a software firm with an advertising review solution to help with the submission, the review, the approval, the books of record storage, the archiving and so on of what’s generally considered their marketing material. So that’s our sweet spot. We’ve done really well in the global asset management space, and we were delighted to get a chance to work with Synthesis on this project.

Emilie:

Thanks Stephen. And also here with us, as always, is John Toepfer, CEO and Founder of Synthesis. Thanks for being here John.

John:

Always a pleasure.

Emilie:

Stephen, maybe you have some insight into the problems that you’re seeing with the current marketing review process. What are the things that you’re running into most of the time, and why are clients coming to you seeking a solution?

Stephen:

Well, a lot of times clients come to us to become more efficient, to get material-to-market faster, to make sure their books and records are more complete, but I’m gonna paint a scenario, which hopefully most of the folks listening to can relate to. So picture this. You’ve been notified that you got an upcoming regulatory exam, and the regulator sent you the typical document request list in advance, which you readily comply with. You give him what they want. A few weeks later, the regulators show up. They’re sitting in your office, and they pull out some material and show that material to you, and it’s material you’ve never seen before. And worse yet, if you have seen it, you know instantly that you would never have approved it. You have a problem. This is a big problem in this industry when you have sales people that are incented to be promoting your product, and yet the current systems they’re forced to work with are so inefficient that, in order to satisfy the needs of their client, they’re often bypassing the policies and procedures of the firm. This presents, essentially, two big risk points to these firms, all of which can result in huge fines and potential embarrassment to the firm. But the first one is incomplete books and records, so that you’re missing some presentations that were perhaps given by some of your reps, and the second thing, is that the material that was used would never have been approved. So, potentially your sales folks are using material that had either expired, or some previous version they did for some other customer that’s being kept on their computer. And because it’s expedient, they’re just modifying some prior work, and using it over and over again. Both are big problems.

John:

So from the Synthesis standpoint, where we’re in the business of supporting a compliance driven presentation management process, we see exact on the same types of issues in the field where the sales force, in effort to be expedient, to do things done quickly, and to be customer responsive, they kind of rip and shred and put things together on their own, and they run out and have a meeting. And we have very good controls and tools within our software to support that, but the human factors are sometimes really quite intractable. We’ve deployed FlightDeck of course many times, and it was very interesting to have the large financial services firm that Emilie mentioned earlier connect Synthesis and Red Oak together to try and further fill the gap of making sure that things are properly handled and properly distributed in the field so that you’re avoiding risks that come up. And so it’s created a process that’s fairly unique and I think of growing importance in the field.

Stephen:

Yeah, I agree John. I see exactly the same thing. I mean the problem, at it’s very heart, is rarely bad actors that are deliberately not following policies and procedures. Although, it can be occasionally. It’s most likely just the result of procedures that are too difficult to follow or that take too long. So, to your point, it’s just expedient to grab whatever’s handy and use it in the absence of a system like we’ve implemented in the case of this global asset manager.

John:

I know you have many customers for your AdMaster software. Was dealing with a global client on a global scale a different business problem for you to take on? Or did it fit into the same framework you already had in place?

Stephen:

Yeah, we already had it in place. We’ve got quite a few large global asset managers. So, the global nature of it wasn’t particularly difficult. It was just the volume of material they’re producing, made it very difficult for them to manually track it.

John:

What is the state of the art … When somebody doesn’t have a piece of technology such as yours, is it just a complete hole in their compliance and books and records, or do they usually have at least an effort at a manual process to support the business problem or the risk problem?

Stephen:

Yeah, great question John. They’re all doing something to try and mitigate the risk. The policies and procedures need to be reasonably designed to prevent and detect X. And X in this case is material being used that has never been approved, is not part of your books and records, and such. So the policies and procedures typically will be some sort of approval process for the templates. Those are typically being created by an in-house marketing team going through an approval workflow of some sort. If they’ve got our software, it’s going through our software. If they’re using an in-house system or some other product, it’s still going through and getting approved. The problem comes when you’re dealing with the sales reps, and the sales reps are using this material and how do you then detect it? Well, the prevent side of the policies and procedures is training. It’s making sure they understand the policies and procedures, it’s making sure they understand the consequences to them personally and to the business should they not follow these policies and procedures. It’s retraining and assuring that they understand the training is on the prevention side. On the detect side, they have audit teams that are going out and physically looking for material, keeping this in the scope of presentation material. They’re looking for that material and making sure that it has been approved. And in the event that it hasn’t been approved, they’re taking remedial action. They may put the rep on heightened supervision. They may change their policies and procedures, that there were some gaps in those policies and procedures. Or if it’s an ongoing problem, they may implement a solution such as the two of us have put together.

John:

My next question, Stephen, would be is it more of a carrot or a stick method in encouraging adoption … And you’re looking for 100% compliance with a system like that. What are the methods, and you kind of touched on this, but what are the methods for an asset manager to say to their fields sales force, “Hey, there’s no question. You will not speak to a person with material that has not been through this process.” Are there incentives, aside from the monitoring and remediation side of it, that they offer to get their users on board with the system?

Stephen:

Well, one of the incentives is continued employment.

John:

That’s a good one.

Stephen:

Different firms have different standards that they’ll accept. I mean the reality of it is if the regulators find something and it’s reasonably good material, it just wasn’t part of your books and records, it’s easy to respond to that. You can say, “Our policies and procedures are reasonably designed to prevent and detect this sort of thing from happening. We missed one but it’s not because our policies and procedures are bad, or that we have bad actors, it’s just that we’re not perfect.” That’s an acceptable answer or in some cases. The problem is when there’s a large amount of that and it appears that your policies and procedures are in fact inadequately preventing and detecting it.

John:

Tell us about what you’re seeing in the regulatory environment. I’m gonna assume that the environment has gotten more and more strict, and audits have gotten more affirmative and more penalty oriented over the last several years. DO you agree with that and what nature of compliance and audit are you seeing. How would you quantify what’s happening in the industry from a compliance and regulatory standpoint?

Stephen:

Yeah, absolutely. We’re seeing the same thing as you are. In fact, there has been a number of high profile cases where the sales incentives and the sales culture of the firm were so substantial that there was a bunch of bad behavior. Kind of the headlining of the situations, the regulators of course then start focusing on those issues as well. So seeing exactly the same thing you’re seeing.

John:

Do you find that the focus of the regulators is more on the information delivered on the whole or on any discrete elements of it such disclosures and disclaimers, or things that were particularly sensitive that were treated correctly? There was a really interesting article in the Wall Street Journal yesterday. It was attempting to paint Morningstar in a bad light for the star ratings being not really a good indicator of the future performance of a fund. To me, it was a silly article because they’re not intended to be a forecasting tool, they’re a retrospective tool, and there’s therefore no smoking gun if anybody bothers to read the disclosures and disclaimers that go around it. So the content, the details are critical. So, going back to my original question, which is are the regulators looking at the overall material being presented or disclosures or disclaimers or is it equal?

Stephen:

It’s all of the above. I mean they’re looking overly promissory material, wheelbarrows full of money, stock tickers symbols going way up, overly promissory, not fair and balanced, not stating the risks, and of course not having appropriate disclosures. But, most of the advertising review violations are throwing in on top of something else that has triggered it. I mean the regulators may find some stuff in exam some material that’s clearly not compliant or that they think should have more disclosure on it or something. You’re probably not gonna get in a ton of trouble for that if it’s all it is. But, if they feel that, say a certain number of complaints have triggered the exam and the complaints are because of sales practices, you’re gonna get them looking in great detail at all of the sales material that have been used in support of those sales practices and now you’ve got a big problem. So it’s kind of the rear view mirror thing. If you’re doing what’s in the best interest of your client, you’re getting approvals on this material, and there happens to be a few things wrong with them, it’s probably not a big deal. The minute the clients start to feel they’re not being treated fairly, or the regulators feel you’ve got predatory practices, now all of a sudden it’s a big deal. And just as an example, Stanford, who the regulators, the SEC, thought was running a Ponzi scheme brought them down not because they were able to find evidence of the Ponzi scheme but because of the sales collateral they were using, the training collateral they were using to train reps that were selling their products. Those were not compliant and that’s what ultimately got them shut down.

John:

Very interesting. I mean the main goal of all of this is to make sure that consumer rights, and the consumer right to have accurate information on financial decision making is those rights aren’t being violated … Of course, one of the biggest new items along those lines in the last couple of years is the 404a rules, the fiduciary trust rules, which are really upsetting the industry in terms of making sure that advisors are very clear about what their motivations are, and not selling things just ’cause they make more money on it. Has that played heavily into the trend line you’re seeing in terms of regulatory concerns at fund companies of all types?

Stephen:

Not that much I don’t think at the fund companies. I think the retail broker dealers are feeling it a whole lot more than the fund companies are. I think it’s an issue and it’s generally been a move in general to move to more of a fiduciary standard as opposed to a suitability standard. Then a lot of the firms were ahead of it, on it. I’m not sure all the material was updated in a timely fashion. Certainly the whole DOL rules that were coming into play were kinda on again, off again, on again, off again, and that created some uncertainty amongst our client base. But most of them took the approach that it’s likely gonna happen so we better be prepared for it.

John:

Okay. When you’re dealing with clients who have in, historical terms, generally had fairly manual processes, do you find that it’s a slam dunk they know they need a tool such as yours in replacement for manual or homegrown systems, or is that a difficult sell for you?

Stephen:

It used to a be a difficult sell. It’s becoming very easy. Just an example John, we were recently at the FINRA Advertising conference and we were recently at the National Society of Compliance of Professionals annual conference, and I was amazed at the number of folks that had come up to us that we’ve talked with four years ago, or three years ago, or five years ago that said, “I know we decided to go with an in-house system, we’re now ready to look at buying a product. We just aren’t getting the changes we made in a timely fashion and frankly, it’s become expensive. It’s actually getting in the way of us doing business, as the ITPs are focusing on other priorities.” In answer to your question, it’s becoming much easier. I think the market generally is becoming aware that you don’t build a work process, you buy one. And an advertising review solution, now that there’s some good options available, it’s just kind of a slam dunk that you should buy one.

John:

Right. From where we sit, we celebrate the growth and popularity and frequency that we run into your tool much less than any of the other tools of that category in the industry. Because it’s a very frequent ask for our clients to say, “Oh, can you integrate FlightDeck, or FlightPath with our compliance system?” And then we shudder and cross our fingers and say, “Tell us what your compliance system is.” And then they tell us it’s Red Oak or a sensible system with a good API. We’re like, “Great, no problem. We can plug into that and give you a seamless solution.” But about half the time it’s, “Oh, we built this thing once way back when. It doesn’t really have an API. Can you integrate with it?” And then we end up saying, “The client’s surprised that there is a very large build cost to make that connection happen.” So we really like the commercial direction that I think Red Oak is a leader in bringing to market.

Stephen:

Oh, thanks John. I think the combined solution’s fairly unique in the marketplace right now. And it may be worth just going through that solution in a little bit more detail here if you don’t mind me going on. But the need is for a holistic solution to make it easier and faster to get custom material approved. And the sales rep, they got a presentation, they got a client they wanna meet with … It’s gotta be easy and it’s gotta be fast ’cause if it’s harder than them finding a file on their hard drive and making changes to it, they’re gonna go back to the finding the file on the hard drive and making changes to it.

John:

It’s a very impatient audience that we’re expecting to comply with this. Well, we’ve gotta be sensitive to that if we’re gonna compliance internally.

Stephen:

Absolutely, yeah. And any failure of that, in any system that’s designed, any policy and procedures around this, if they’re not sensitive to that they’re going to have to carry a bigger stick to try and enforce it. So, the prevent side’s gonna be harder. The detect side has to take more money and therefore the whole cost of the solution is a whole lot higher without implementing a set of systems like we’re proposing here. But the first step is your marketing team creates and submits for approval and then published the approved templates for use. And then of course, that’s controlled and various people can come in and then use these templates through your product and then the reps are guided through making “non-material changes” in these presentations. And then those are resubmitted through your tool, passing the material over to the AdMaster system, which then immediately sends them an email notification with an approval link-in saying, “Your material’s been approved for use.” The way we’re able to do that or the reason we’re able to that is because of some confidence that the guardrails your tool has put up around those changes, in combination with the training that the reps have had. The advantage to the rep then is in that email notification they get is a link to download a copy of their approved presentation that has an approval code stamped on every page in every slide. That solves two problems. It’s in your books and records, 100% of the time if they follow this. Two, it makes it super easy for the branch examiners to know when they see a piece laying around that it wasn’t [inaudible 00:31:53] approved. It’s not a pre-approved version that never made approval. Sometimes in the absence of these tools, a rep will send something in for approval, get impatient and go ahead and use it anyway, and then eventually submit the approved version, but that’s not the version they used with their client. They used the pre-approved version. So, lots of controls here that then really helps solve the effort on the detect side of it.

John:

One thing to point out in that workflow is that, for the client that Stephen and I are talking most directly about, there is a category of literature that is locked down and standardized and is considered pre-approved, and the sales rep does not have to wait for any process time to get that stamped and out the door for them. And then they’ve segmented into a whole another category, a whole another workflow, material that has been modified for a client presentation and therefor really does need to go through a quick regulatory, hopefully quick regulatory check, be processed and approved with a little bit of time built into it. So then the goal for those types of presentations is to make it as organized a process as possible so again, not delaying the sales person, not making them feel that it’s a burden, yet satisfying all the regulatory or compliance concerns in the process.

Stephen:

Yeah, absolutely. You brought up a trend that we’re seeing as well. We’re now advising all of our new clients, and some of our existing clients, that the trend in the industry is to think of your workflows based on the risk. We’re seeing high risk workflows, medium risk workflows, and low risk workflows. And the steps and complexity of those workflows greatly diminishes as you get down to the low risk to the point where most of the material that’s coming from your tool, as a result of the sales folks creating a customized deck, are going in on a low risk workflow and are being post-use audited. So there’s a sample of them that are being audited by an internal audit team to make sure nobody’s gone rogue and somehow broken the system. That’s what enabled the reps to get that immediate approval back. And then of course, the medium risk like you just mentioned, there’s a set of eyeballs … You know, typically in compliance, there are legal looking at it and saying, “Yeah, this looks good. And then that’s also a fairly expedient review. Again, time-to-market is sensitive here. We’re doing everything we can to advise our clients on how they can get the material in use as quick as possible without much delay.

John:

I’m not sure how much insight you’re gonna have into this, but the compliance department takes a fairly passive view of what their role in the organization is, such as they are a service bureau, material arrives for their review, they react to the material, and then the case is closed. They don’t prescribe, dictate, or own any forms of the material in the organization, so they end up treating each submission as a unique event and having to react and turn around content, suggestions, changes, or concerns uniquely. When we see that, especially in our world where we’re dealing with content at a very discrete level … You know, often sentences and paragraphs of disclosure or individual templates of how information is gonna be displayed about a product, we’ve been trying to emphasize the idea or push the idea to the compliance teams of ownership, so that they own the language library and all the people use the language library. Or they own the template designs and all the people use the template designs. Which doesn’t necessarily make them designers or authors, but it puts them in the position of being able to point at a known approved library of material and say, “If you use that, you’re gonna be much closer to your end goal, and you’re gonna reduce the cycles of pushing things through compliance.” Does that resonate with you experience? Is there anything you’re seeing in the market?

Stephen:

No, that totally resonates. Yeah. Excellent point. One of the things we see in a more retail environment, where you may have a retail-broker dealer where you’ve got a bunch of reps operating under their own brand, not the broker-dealer brand, and they’re sending material in to get approved and some of it’s absolutely heinous. They’re just creating stuff fresh all the time, and it really does slow down the review. There’s a lot of back and forth. If we look at the metrics, there’s a lot more touches. So it’s not like back and forth once, and it’s improved. It’s like back and forth five times, and you still have issues with it. So yeah, absolutely. Anything you can do that gets them the flexibility and the professionalism that comes from that standardization, I think you’re helping your entire team get the job done.

John:

I had a real interesting experience a couple of months ago, which I also shared in a different podcast. I’ll do a brief version of it here, which is we attended the national sales meeting for a financial firm who had implemented Synthesis Solution. And so we got to be in the room as the platform was being rolled out, shown to … The retirement sales team was the first user group, and watched as the sales team kind of freaked out that the design, the branding, all that stuff was being taken out of their hands and gonna be very centrally controlled. The sales people, their habit in the past had been literally looking around the web and Google images and finding the clients’ logos and slapping on the presentation, and re-branding everything around being client-centric was the mantra. Our deck should look like the clients, not like ours. And the idea that that’s a really bad compliance idea, it’s a really bad quality of material idea, and then marketing and compliance were trying to give them something that had better general visuals and aesthetics, better compliance, and really strong messaging from a centralized location was a very new and very concerning topic to the sales team. I think there’s a lot of sales teams out there that would have had the same reaction, and it is a very difficult leap to take out of their hands, presentation-creation, and put it into centralized authority, and not have what they would conceive of as being a degradation of the service quality they’re providing to their audiences.

Stephen:

We do capture metrics and make them available to our clients, and they have a report they can run. We call it a touch report and they can run it by sales team, or marketing team, or compliance team, or legal team or whatever they want. And it compares individuals on how many touches a submission has had. We generally see the numbers in the 25 to the 35% range kinda average across the board when folks first started using our system, and then they tend to go up by about 10% so there’s typically one less touch per piece after a while. But, by integrating in with your product it actually is about 100%. We’re not at 25% efficiency or even 35. We’re much closer to 100% where every piece that goes in is approved, and there’s no back and forth. Maybe on the templates, but not on the customized use of those templates. That just saves a ton of effort and in the absence of that, there is a lot of back and forth, and when teams get busy, what we see with those metrics is the metrics actually go in the bad direction. They’re touching it more, which is counter-intuitive. It’s like a traffic jam. “Hey. How come there’s more touches when we’re busy? Well, because nobody’s doing their job thoroughly. The creator of the material isn’t making all the changes that were requested, and frankly, the reviewer of the material probably wasn’t giving you all the changes they needed on first go around. They’re reading page two the second time they get it, and coming up with another list. This gets even scarier when teams get more busy. We actually see those metrics go up, and they go up suddenly, and they go up drastically. Guess what’s happening?

John:

They’re rubber stamping aren’t they?

Stephen:

They’re rubber stamping. “We got so much pressure. We gotta get this stuff approved. We’re holding up sales. The vp of sales is all over us and there’s lots of complaining going on here, and we can’t hire new people fast enough.” Well, what do you do? You say it’s good enough, and that’s really scary from a regulatory perspective.

John:

The culture of most of these firms, even the well run ones is sales kinda gets what sales wants. It’s very hard to say no to the sales team, and so it encourages some shortcuts that otherwise people wouldn’t do in good conscience.

Stephen:

Yeah. Compliance is often viewed as a cost center and is not given the tools to do their job. Or at least, that’s generally been a perception over the years. And then sometimes compliance folks complain about that a lot, but the best solution is to partner with marketing because then you help drive revenue. You’re not just a cost center. You’re actually helping generate more revenue for the firm while keeping the firm out of the crosshairs of the regulators and the potential fines.

John:

That’s a really good point, but we do emphasize to our clients the reduction in risk can be thought of as a revenue center. You’re not creating new revenue, but every million dollars you’re not fined is as good as a million dollars of new inflows of assets.

Stephen:

Absolutely. Oh absolutely. And it used to be hard for compliance to make that pitch, but there’s been so many big fines levied over the last number of years that it’s getting easier for them to make that pitch. They’re starting to take it more seriously. I think a lot of the big firms were forced to do that early. I think a lot of the smaller firms are catching on that it’s also smart to do that rather than wait till they get in trouble. One of the things the SEC did a number of years back and FINRAs doing the same thing is they started doing risk based exams. So it wasn’t just that your number’s up, it’s time for your exam. They looked at your risk profile and think they went into that risk profile as have you got bad actors there, folks with bad regulatory history in positions of power within that firm, that’s gonna put you up on the risk profile. What type of products are you selling? What type of clients are you selling to? How many assets do you have under management? And how have your past exams been? So if your past exams have been filled with deficiencies, even though it may not have been made public and there may not have been a fine levied, you’re going to get examined more frequently and more thoroughly and that’s expensive.

John:

I’m gonna ask a question. It shows a piece of ignorance of mine in the regulatory end of this business. Are the regulatory bodies, the FINRAs, the SECs and whoever, are they actively out, proactively finding information and looking for transgressions or are they more passively waiting for reports and calls from concerned consumers or recipients of information.

Stephen:

I believe they have teams that are actively looking for issues, but in fairness a lot of it is scheduled exams based on your risk profile and how frequently they wanna examine you knowing that they’ve made commitments to how frequently they’ll examine everybody. The other is customer complaints, or complaints or competitors complaining about your sales practices. So they look at the complaints coming in and the seriousness of those complaints. They take those seriously. That can certainly trigger an exam. Otherwise, it’s largely when is it time to examine you.

Emilie:

Well, I think that’s all the time we have. I want to thank you both for being here. John, our fearless leader, CEO and founder of Synthesis Technology. And our wonderful guest, Stephen Pope, from Red Oak Compliance. Thanks for being here Stephen.

Stephen:

Thank you Emilie.

Emilie:

Thank you, and if you want to connect with Stephen, you can check him out on LinkedIn, or you can find him on his company’s website, redoakcompliance.com.

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Emilie is Head of Marketing at Synthesis. She is passionate about buyer personas, the client experience, and making marketing work for the bottom line. Emilie graduated from the University of Illinois at Urbana-Champaign with a Bachelor's degree in Advertising in 2004. She lives in the Chicago suburbs with her husband, son, daughter, and two crazy cats. She fanatically roots for the Chicago Bears, despite their terrible record. Go Bears!

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