Considering Which Parts of Compliance to Outsource

As retirement advisory firms grow, add advisers, expand service offerings and deal with an ever-growing list of regulatory requirements, compliance can become a scaling challenge.

Some firms—especially smaller and mid-sized ones that lack the scale to employ a full compliance department—are embracing outsourced or partially outsourced compliance support that can allow firms to focus internal resources on client service, consulting and growth.

The Available Options

Shane Hanson, president and CEO of Freedom Fiduciaries LLC, says there is a spectrum of compliance options available to advisory firms, ranging from basic providers offering “out-of-the-box” services, such as filing documents, to hybrid solutions in which firms retain responsibility internally but receive ongoing outside support. Larger firms may fully outsource compliance leadership functions or hire dedicated chief compliance officers.

Freedom Fiduciaries, which has seven team members, has taken the middle path: While Hanson takes on the chief compliance officer role, his firm also relies on outside expertise. “We have ERISA counsel for specialization … because that’s outside of the traditional compliance aspect,” Hanson says. “We have a specialized, dedicated team [dealing with] contracts and questions and emails and everything that we need to do to be prepared, in the case of when the audit gets called, that everything is in good order.”

Other smaller registered investment advisory firms outsource infrastructure while maintaining direct control over client-facing compliance processes. Justin Londergan, partner at Ardea Fiduciary Advisors, says his seven-member firm makes sure fiduciary documentation and client interactions stay in-house.

“We lean on our RIA’s compliance infrastructure for the heavy lifting—policies, archiving, surveillance, exams—and keep the day-to-day discipline in-house: documenting advice, fee disclosures, committee minutes,” Londergan says. “For a plan adviser, the most important compliance work is fiduciary process documentation. If it isn’t in the minutes, it didn’t happen.”

Caution With Technology

Technology, especially involving artificial intelligence, is often cited in surveys as a solution to free up advisers’ time and boost efficiency. Hanson says his firm uses technology extensively to automate routine tasks, including verifying that contractual obligations are fulfilled and properly documented.

“We have a very diligent structure of oversight, and we use technology internally to make sure we are executing on contract agreements, services, an annual calendar,” Hanson says. “If we had to hire somebody internally to do [that tracking], that would be a waste.”

Experts say it is important that there is a “human in the loop,” checking AI output to ensure the tools follow directions and do not invent answers. Sources speaking with PLANADVISER shared significant reservations about using AI as a final authority for compliance, due diligence, fiduciary oversight or plan administration.

Carrying Out Compliance: AI vs. Humans

“Internally, we do not use any AI products from a compliance standpoint because that 0.1%, or whatever it is, that it could go wrong, that’s not something that we’re willing to jeopardize,” Hanson says.

Similarly, Dan Beck, CEO of retirement-plan provider 401GO, says AI is more suited for “rules-based processing,” such as document review and processing incoming data from other providers. He believes it cannot replace human compliance professionals, who need to make final judgment calls.

“We don’t want any ambiguity when we’re dealing with plan administration,” Beck says. “We’re using AI to kind of give us an edge but, at the end of the day, humans need to review this.”

David Smith, chief investment officer at Bailard Inc., a wealth and asset management firm, echoes the need for human oversight. Smith heads his firm’s committee on AI use and provides one-on-one training to coworkers, emphasizing the importance of governance and ongoing monitoring.

“[AI tools] are predictive engines. They make mistakes; they have hallucinations. … You need to understand that you’re putting the inputs in, and you may not get the output that you think you’re getting,” Smith says. “The human has to be in the loop, and that doesn’t just mean hitting enter and saying, ‘OK.’”

For retirement advisory firms trying to scale, sources agree the question increasingly is not whether compliance will involve outside service providers and technology, but which tasks can safely be delegated. Ultimately, advisers find human expertise, accountability and fiduciary judgment are irreplaceable.

“Tools can speed up the work, but they don’t replace judgment. A human reviews anything client-facing, and no tool substitutes for a documented decision or a compliance sign-off,” Londergan says.