De-Risking Wealth Management Through Strategic Outsourcing

For financial institutions, scaling a wealth management program can open up powerful, profitable new avenues of growth. However, it can also require investing in complex systems and technology to address the risks around regulatory compliance and operational continuity. Without such systems — and the right people to run them — firms are likely at greater risk of government regulatory penalties, reputational damage, client disputes and cybersecurity issues.

Fortunately, financial institutions do not have to surmount these hurdles on their own. Firms can outsource most risk management functions to a Wealth as a Service (WaaS) provider. The right provider can mitigate compliance and continuity challenges while ensuring firms retain strategic control as they build scalable growth.

Shifting the Regulatory Burden [Risk]

Growing a wealth management business can significantly increase an institution’s regulatory burden. Oversight of brokerage and advisory activities by FINRA, the SEC and other agencies means that mistakes can result in damaging sanctions and costly penalties. 2024 marked a record year for regulatory fines, with $19.3 billion in penalties largely driven by major enforcement actions in the U.S. and UK. In addition, the same wealth management missteps that trigger regulatory consequences can also provoke client disputes and inflict reputational damage.

While some expect a potential softening in U.S. enforcement, global firms are doubling down on compliance investments thanks in part to increasing global pressures. Regulators are increasingly working together across borders, especially in areas like AML, sanctions, and digital assets. Evolving technology is also affecting the compliance landscape: Regulators are scrutinizing the use of AI and machine learning in compliance systems, while crypto exchanges, DeFi platforms, and stablecoins are under tighter scrutiny.

Outsourcing to a WaaS provider can shift the regulatory burden and help guard against expensive mistakes. A specialist provider can manage key tasks and processes such as trade supervision, anti-money laundering (AML) monitoring for investment accounts, record-keeping, audit preparation, and ongoing compliance with FINRA and SEC rules. The right WaaS provider can bring to bear critical experience and scale, with teams that meet or exceed regulatory requirements more efficiently and effectively than institutions’ in-house teams.

Not only can a leading WaaS provider significantly lower the likelihood of compliance mistakes, it can also bear the costs in the event that something does go wrong — the outsourced partner owns operational, regulatory, and litigation risk. In other words, by outsourcing compliance functions, financial firms aren’t just lowering their risk profiles — they’re offloading risk, too.

Strengthening Operational Continuity and Resilience

Ensuring operational continuity and system resilience is critical for navigating today’s complex financial landscape. In wealth management, this means staying ahead of technological advancements, strategically adopting tools that enhance efficiency and security, and allocating resources wisely to support these investments. Shortfalls in technology investments, in particular, can increase vulnerability to cyberattacks and costly, unplanned downtime. Equally important, financial institutions must also guard against key person risk, ensuring that no critical technology functions fall upon the shoulders of just one employee or leader.

Technology investment and key person risk remain persistent challenges for many financial institutions, especially those with limited time, expertise, or staffing. Fortunately, institution-grade infrastructure from a WaaS provider can offer a practical and powerful solution. The right provider can offer a platform that is secure, modern, and continuously upgraded with cutting-edge technology, including cybersecurity defenses. It can offer business continuity planning, 24/7 professional support, and redundancies that eliminate key person risk. As with compliance, outsourcing business continuity and resilience functions to a WaaS provider can make all the difference for financial institutions.

Empowering Strategic Control with Shared Oversight

A WaaS provider can take on the most intensive, cumbersome and complicated facets of risk management — the day-to-day heavy lifting. But the most effective risk management relationships allow financial firms to retain strategic control. An institution can continue to set compliance and product policies as desired, for example, while the provider ensures consistent, regulatory execution. The right provider will also maintain open lines of communication, delivering regular compliance reporting to the firm’s oversight team. Such strategic control and shared oversight serve as built-in checks and balances, helping institutions confirm the provider’s alignment with their business and risk management objectives.

Enabling Scalable, Risk-Adjusted Growth

A WaaS provider can play a pivotal role for financial institutions in mitigating risk as they scale their wealth programs, delivering long-term resilience. The right specialist can successfully manage compliance and operations continuity functions even as an institution expands advisor teams and client assets. A WaaS provider can also offer support for advisor onboarding, training and transitions so that advisors feel confident with the processes and technologies designed for their success.

Perhaps most importantly, by relieving institutions of the most cumbersome and complicated facets of risk management, WaaS providers increase firms’ bandwidth to focus on growth drivers. It becomes easier for firms to seize opportunities for improving client service and expanding product offerings, for instance, when a trusted specialist is handling the most intense challenges behind the scenes.

At LPL Financial, our robust compliance, legal, risk and security policies are aligned with the risk appetite of institutions. We are proud to offer battle-tested, customizable compliance programs and advanced technology solutions integrated into our industry-leading wealth management platform. With our help, financial institutions can unlock the potential of their wealth management business, ushering in success as they offload risk.