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Stop Procrastinating on Your OFAC Reviews to Improve Onboarding

A slight adjustment in the account opening process can save advisors and clients time and avoid NIGO reports.

Amid intense competition, a growing number of firms are realizing the value of seamless and streamlined client experiences. Unfortunately, when it comes to delivering an optimal client experience, compliance and risk mitigation tools are rarely top of mind. Advisors nowadays can have the best of both worlds—avoiding regulatory hurdles while delivering a delightful client experience—by prioritizing clients’ compliance needs from the outset of the relationship.

With decades of globalization driving the demand for, and the complexity of, electronic wealth transfers, there has never been a greater need for enhanced compliance checks. In 2022, the total estimated cost of financial crime compliance in North America was $56.7 billion, up 13.6% from 2021. Even amid this rise in crime, some firms still choose to wait to conduct reviews by the U.S. Department of the Treasury Office of Foreign Assets Control (OFAC) until after an account is opened. Although the odds of something going wrong are about the same as being struck by lightning—which is less than one in a million—as a fiduciary, you always need to be prepared for that unfortunate one to be you.   

It’s the same reason many of us buy term life insurance—not because we know that we will pass away in the next few years, but to protect our families in case that unfortunate eventuality occurs sooner than anticipated.

That’s why I am in favor of performing OFAC checks before the account opening stage. By implementing systems that can proactively complete checks, including new account opening solutions that automate OFAC checks as part of their process, firms can streamline the onboarding process and drive higher client satisfaction. Traditionally, these checks have been performed manually post account opening, costing the advisor and end client valuable time and potential gains. This slight adjustment to the account opening process can also help prevent the need for account closure if an OFAC review does raise red flags. In some instances—and rightly or wrongly—the custodian may freeze a client's account if they are found to be on a watchlist. By completing the necessary checks at the account opening stage, the advisor is afforded peace of mind and the client is spared the negative and frustrating experience of opening an account that cannot move forward.

For larger wealth management firms trying to onboard significant numbers of new accounts, these scenarios can mean the loss of significant revenue as well as damage to the firm’s reputation and brand.

Proactive regulatory checks can prevent the four words that no advisor wants to see or hear associated with any of their accounts: “Not In Good Order” (NIGO). Proactive compliance checks can serve as a NIGO eliminator of sorts—picture a homing device that targets NIGOs. These measures give the advisor, the client and the firm confidence that all necessary steps were followed. After all, the account opening stage is among the most crucial of the engagement. Since it often sets the expectation and tone for the rest of the advisor-client relationship, it’s always best to make a great first impression.

Regulatory solutions, more often than not, aren’t prioritized until it's too late. As our regulatory world becomes increasingly complex, the need for advisors to prioritize proactive compliance solutions will only increase. Your goal should be to run a streamlined practice that offers a user-friendly client onboarding experience. Save yourself and the U.S. Department of the Treasury some time and do your OFAC ahead of schedule. Your current and future clients will thank you.

Chris Zuczek is chief product officer at Skience.

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