Compliance in wealth management should be an ongoing, proactive process, not a box-ticking exercise. Wealth managers need efficient, adaptable systems to stay compliant as regulations grow more complex, particularly across multiple jurisdictions.

To keep up with these demands while staying aligned with clients’ investment goals and restrictions, wealth management firms must constantly adhere to regulations and leverage appropriate technology to reduce error-prone manual approaches.

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US vs. EU Wealth Management and Investment Regulations

Regulations across the US and EU are in place to govern wealth management and investment practices, aiming to protect investors, ensure transparency, and maintain market integrity.

The approach and implementation of both regions differ, creating distinct challenges and considerations for wealth managers working with clients across these markets.

U.S. Wealth Management Regulations

SEC (Securities and Exchange Commission) Rules

The SEC was established in 1934 following the 1929 stock market crash to protect investors and ensure fair markets. The primary goals of SEC regulations are to increase transparency and prevent fraud.

Wealth managers must comply with SEC rules on fiduciary duty, disclosure, client communications, and reporting requirements. They’re responsible for providing transparent investment advice, avoiding conflicts of interest, and following fair practices in managing client assets.

Foreign Account Tax Compliance Act (FATCA)

FATCA requires foreign financial institutions (FFIs) to report on financial accounts held by U.S. taxpayers or foreign entities where U.S. taxpayers own or control more than 10% of the entity.

Wealth managers must ensure that US clients holding foreign assets above $50,000 report these assets on IRS Form 8938, which is part of their annual tax filing. The threshold is higher for joint filers or taxpayers living abroad.

FinCEN Form 114 (FBAR) may also need to be filed for foreign bank accounts exceeding $10,000, and wealth management firms should be aware of this requirement when advising clients with offshore assets.

EU Wealth Management Compliance

MiFID II (Markets in Financial Instruments Directive)

MiFID is aimed at increasing transparency across the EU’s financial markets and standardizing regulatory disclosures for firms.

In 2018, MiFID was replaced by MiFID II, which expanded its scope to cover more financial products and introduced stricter requirements to improve market integrity and protect investors. These include requirements for best execution, suitability assessments, cost disclosures, and the recording of all communications related to client orders.

AIFMD (Alternative Investment Fund Managers Directive)

AIFMD was implemented in 2013 to regulate alternative investment funds, such as hedge funds, private equity funds, and real estate investment funds.

The directive aims to reduce systemic risk posed by alternative investments, which were largely unregulated prior to the 2008 global financial crisis.  

While wealth management firms don’t directly operate under AIFMD, they must be aware of its impact on the funds they advise. If recommending or advising clients on funds that are marketed to European investors, they should consider whether the funds are AIFMD-compliant.

ESG (Environmental, Social, and Governance) Regulations

ESG regulations require wealth managers to ensure that investment strategies reflect environmental sustainability, social responsibility, and ethical governance.

To prevent misleading claims and greenwashing, EU legislation sets clear standards for ESG-labeled products. Wealth managers must comply with key frameworks such as the Corporate Sustainability Reporting Directive (CSRD), European Sustainability Reporting Standards (ESRS), and the EU Taxonomy Regulation. These frameworks help confirm whether funds marketed as sustainable truly align with ESG principles.

Digital Operational Resilience Act (DORA)

DORA, which came into effect in January 2025, aims to improve the digital resilience of the financial industry. It focuses on managing technology risks, reporting incidents, and overseeing third-party service providers.

Wealth managers must take steps to ensure strong cybersecurity, regularly assess risks, and monitor systems in real time. If any issues arise, DORA requires detailed incident management, which includes reporting problems to authorities quickly and keeping clear communication plans in place.

The regulation also requires wealth managers to test their systems’ resilience, such as by conducting penetration tests.

Third-party service providers, which wealth managers may rely on for functions like data processing or hosting, must meet the same stringent security standards. In the event of a data breach, the wealth manager must promptly report it to both regulatory authorities and clients.

DORAedge makes it easier for wealth managers to comply with DORA by facilitating simplified management and tracking of digital resilience efforts. It includes features like real-time compliance checks, vendor risk assessments, and automated incident reporting.

European Securities and Markets Authority (ESMA)

In response to the growing concern over greenwashing in the investment industry, the European Securities and Markets Authority has introduced new guidelines aimed at improving transparency and preventing misleading claims about the sustainability or environmental focus of funds.

The ESMA guidelines set clear standards for how funds can use terms like “ESG,” “green,” “impact,” and “sustainability.” Funds that use these labels need to make sure their investments match the claims, preventing them from marketing themselves as sustainable or green without meeting the necessary criteria.

With increasing investor demand for sustainability, wealth management firms often work with funds labeled as ESG or green. However, with the rise of greenwashing, where funds exaggerate or misrepresent their sustainability claims, wealth managers must ensure the funds they recommend to clients fully comply with ESMA rules to avoid misleading investors.

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Accounting for International Portfolio Diversification

As investors today are less likely to limit themselves to just one region or type of investment, wealth managers are expected to oversee international portfolios and comply with regulations in multiple jurisdictions.

Managing cross-border investments requires an understanding of the registration and filing requirements for each jurisdiction. Different regulations might require extra documentation or disclosures, especially for specific asset classes.

There are also variations in tax year-end dates, rates, and exemptions that need careful coordination to avoid misreporting. Wealth managers must manage double taxation risks by using international treaties and structuring investments in a way that minimizes tax burdens.

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Investor Priorities Regarding Compliance Oversight

Many wealth management firms tend to focus on meeting basic rules and regulations, often only aiming to fulfill the minimum requirements. While this still makes them compliant, it can create communication gaps and lower investor trust.

When it comes to compliance, many investors care about more than a formality-driven approach and have specific priorities regarding:

• ‍Transparency: Investors expect clear, honest communication about how their assets are being managed and what specific compliance measures are in place.‍
• Relevant Guidance: Investors don’t just want a generic “we’re compliant” statement from their wealth managers. They want to understand how compliance affects their specific situation and investment opportunities. They’re looking for tailored advice and guidance that considers compliance restrictions and how those rules impact their portfolios.‍
• Data Security and Privacy: Investors want assurance that their personal and financial data is secure and being handled with confidentiality by firms adhering to the latest data protection regulations.‍
• Alignment of Interests: Investors want to be sure that their wealth manager is focused on their needs and goals, not just on making profits for themselves. This means the wealth manager should follow ethical practices, act in the best interest of the client, and ensure that investment strategies are in

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How Perceived Compliance Problems Affect Investor Relations

When compliance issues surface, aside from concerns about potential legal consequences, investors will also question the stability and reliability of the wealth management firm.

These clients may start asking for more information and conducting thorough due diligence to feel reassured about the firm’s practices. This increased scrutiny can put pressure on wealth managers to provide detailed explanations of how compliance is being handled. In some cases, clients may even choose to withdraw their investments if they feel the firm isn’t doing enough to manage risks or keep up with changing regulations.

Even if a firm is technically compliant, perceived weaknesses in compliance can reduce trust and damage relationships with clients.

For instance, investors may still worry if the firm is keeping up with emerging trends or future regulatory changes, like those related to ESG investing. A failure to promptly address these trends could make clients feel that the firm is falling behind, which can hurt its reputation.

Investor expectations are also shaped by generational differences. In the age of millennial and Gen Z investors, there’s a clear prioritization of sustainability and modern practices. If compliance is handled only reactively and not proactively, wealth managers risk losing touch with this growing demographic.

They may eventually find themselves out of sync with a significant portion of the market, potentially losing business to competitors who better understand and cater to these values.

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Balancing Compliance with Investor Concerns

How a firm approaches compliance and communicates its efforts has a significant impact on investor trust and long-term relationships.

Just sticking to the baseline standards set by regulations might cause investors to feel the firm is only doing enough to avoid penalties rather than truly prioritizing their interests.

Similarly, a lack of transparency in compliance efforts can lead to doubts about the firm’s overall integrity.

In contrast, firms that demonstrate a commitment to staying ahead of regulatory trends and addressing challenges early are more likely to build strong, loyal relationships with investors.

Wealth managers should not only focus on meeting regulatory requirements but also use it as a way to strengthen investor confidence.

Demonstrating a commitment to staying ahead of regulatory trends, addressing challenges early, being transparent about efforts, and exceeding basic expectations will help to build stable, sustainable relationships with clients.

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The Need for Continuous Compliance in Wealth Management

Traditional portfolio compliance typically focuses on aligning investments with regulatory guidelines at a set point in time. While this approach provides structure, requires fewer resources, and simplifies compliance, it relies on historical data and fixed asset thresholds, which may not account for the volatile nature of investment markets.

Clients invest and withdraw at different times, and market conditions are unpredictable. A portfolio that met compliance standards last month might no longer meet them today.

Portfolios must be reassessed regularly to ensure they meet both regulations and the evolving needs of clients, especially in a time marked by shifting geopolitical dynamics and unpredictable international relations.

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Moving Away from Static Compliance

Traditional portfolio oversight typically views compliance as something that only needs to be reviewed once, at the time when investment advice is given.

However, this method overlooks market fluctuations, withdrawal patterns, and shifting risk profiles, all of which require continuous monitoring and adjustment.

Wealth managers who treat compliance as an ongoing process rather than a static requirement signal to clients that their interests are being actively safeguarded. This shifts the firm-client dynamic from a transactional service to a trusted advisory relationship.

When clients see their wealth manager consistently adapting to regulatory changes and market conditions, it reinforces confidence in the firm’s expertise and long-term commitment, making them less likely to seek alternatives.

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Using Technology for Wealth Management Compliance

Despite the benefits of adopting a dynamic compliance approach, wealth managers face several common pitfalls. Errors can occur when compliance tasks are handled manually, leading to potential oversights and regulatory violations, while missing documentation can result in non-compliance or delays in reporting.

Data security risks are also increased when sensitive client information is managed across multiple platforms, especially if proper safeguards aren’t in place. These challenges emphasize the need for a more streamlined, automated approach to minimize human error and maintain consistent compliance.

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A Technology-Driven Approach

Wealth management technology can provide automated alerts, built-in regulatory reports, and audit tracking features to ensure that all compliance requirements are met and that wealth managers are aware of any regulatory changes in real-time.

This technology can provide a clear, up-to-date view of portfolio compliance, enabling risks to be assessed quickly and strategies adjusted as necessary for alignment with regulatory standards and client goals.

Automating routine compliance tasks also minimizes human error and reduces the risk of oversights, allowing wealth managers to dedicate more time to strategic aspects of client relationships and portfolio management.

Integrating these technologies into day-to-day operations creates a proactive, client-focused compliance approach that mitigates risks, enhances processes, and fosters long-term trust with clients.

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Stay On Top of Regulations and Build Investor Trust with Proactive Compliance

Effectively complying with investment regulations involves more than simply ticking off a checklist.

Regulations, market changes, tax positions, client preferences, and other constraints require proactive management from wealth management firms, who can no longer afford to take a passive approach.

Although the risks and potential for human error can be challenging, compliance becomes more efficient and streamlined with wealth management software. This software supports portfolio oversight, protects client data, and facilitates the rapid detection and resolution of non-compliance issues.

Simplify and unify your management of multi-asset portfolios while ensuring regulatory compliance with Performativ and DORAedge.