Disclosure Management: A Necessary Evil or a Competitive Advantage?

Long thought of simply as a ‘check-the-box’ activity, Disclosure Management is becoming increasingly important within the asset and wealth management industries as regulatory requirements have become more nuanced and complex, while the penalties for failing to honor them have only grown. Recent SEC fines, such as a $5+ million penalty for one leading firm’s failure to accurately disclose marketing materials, highlight the steep costs of non-compliance, both financially and in terms of investor confidence.

Disclosure Management ensures the accuracy and availability of necessary legal and financial information in a manager’s content such as client reports, marketing materials, and webpages – among the countless other mediums content is taking shape in during the Digital era. It encompasses the entire process from the creation and maintenance of the disclosure language itself, to the application of disclosures into content and their ultimate distribution.

As demand for timely, precise, and impactful content escalates, the efficiency of a firm’s Disclosure Management system has become a determinant in how swiftly they can deliver content. Many firms are hindered by outdated systems and processes, or their absence altogether, that amplify the risk of non-compliance and operational delays.

Asset managers are continuing to launch new strategies in new vehicle formats while expanding into new markets at an unprecedented rate. While these strategic initiatives are critical to the business’s growth, they also exasperate common Disclosure Management pain points:

• Standardization: Many firms lack standardized disclosures, systems for storing and tagging them, and documentation on how to apply them into content – leaving room for individual interpretation between teams
• Centralization: Even when standardized, the absence of a single, reliable, and governed source of disclosures complicates the retrieval and application process – often resulting in duplicative and manual efforts
• Maintenance: Varying regional regulatory bodies, shifting requirements, and a lack of standardization and governance expose a major deficiency in managers’ ability to maintain content from a compliance perspective, or even identify stale content

While the industry plays catch up on best practices, the simple solution has been to increase head count to support the complexity, while accepting the risk inherent in the current operating models. However, this begs the question, are the commonly adopted Disclosure Management models sustainable and do they support growth?

Good can look different for firms of varying sizes, however, a good Disclosure Management system should broadly enable an efficient end-to-end flow of the creation, application, review, and distribution of disclosures across content. To analyze how mature a firm’s Disclosure Management model is, we often chart their maturity on a spectrum from undefined to optimized.

That said, there are a few recurring themes that separate the most efficient models:

• Clearly defined governance: Clear ownership for translating regulatory guidelines into standardized disclosure text and application rules removes subjectivity and room for error
• Technology that supports automation and promotes transparency: All core content systems are integrated and systematically receive accurate disclosures alongside updates as they occur. The best Disclosure Management technology also empowers traceability and auditability, enabling users to self-identify non-compliant content and track changes
• Scalability: These fundamentals make for an extensible Disclosure Management model that can easily support a firm’s strategic growth initiatives across new products and markets

The financial services industry is on the cusp of a generational wealth transfer that is rapidly shifting investor demographics and expectations. Additionally, as artificial intelligence permeates throughout the investment management and RegTech landscapes, asset managers must have a vision of how they wish to adopt it, which often begins with the fundamentals. This has prompted a reevaluation of existing Disclosure Management models to keep pace with investor expectations, technological advancements, and increased regulatory scrutiny.

Ultimately, being proactive in adopting innovative, technology-driven Disclosure Management systems will not only mitigate operational risk but also position firms to capitalize on growth opportunities and remain competitive in an increasingly complex landscape.

Alpha FMC is the leading global wealth and asset management consultancy, and our Client & Digital Practice has built expertise leading some of the industry’s largest content programs over the last decade including strategic Compliance and Disclosure Management initiatives. If you have any questions or would like to find out more, please contact us here.