The True Cost of Compliance: Data Portability and the Hidden Costs of Switching Vendors | Part 2 of 5
- Corrie Scoby
- 17 minutes ago
- 14 min read
By Corrie Scoby • Chief Consultant & Owner, Three Lumos Consulting, LLC
The 5-Part Compliance Cost Series
Welcome back to “The True Cost of Compliance” series. In this 5-part blog series, we’re unpacking often-overlooked factors that drive up the real price of staying compliant in the financial advisory world. In Part 1, we introduced the series and highlighted how compliance costs can far exceed initial expectations when considering fines, inefficiencies, and missed opportunities. (Recall that one study found non-compliance costs 2.7 times more than meeting compliance obligations, averaging $14.8 million vs. $5.5 million annually[1] – a stark reminder that cutting corners is a false economy.)
In Part 2, our focus shifts to data portability – essentially, your firm’s ability to freely access and transfer its own records and information, especially when changing technology providers. For Registered Investment Advisers (RIAs) and other financial firms, data portability isn’t just a technical convenience; it’s a compliance imperative. Yet many firms discover hidden costs and risks when trying to switch vendors or attempting to extract data from existing systems for legal or regulatory responses. These “vendor lock-in” issues can quietly inflate the true cost of compliance and even threaten your regulatory standing.
Upcoming topics include:
• Archive vs. Backup – What’s the Difference and Why It Matters
• Why Your CRM, File System, and Website Must Speak the Same Language
• You Made a Video – Now It’s a Compliance Record
Quick navigation:
The Illusion of Ownership: Do You Really Control Your Data?
Financial firms often assume that because they “own” their data, they can retrieve or move it at will. The reality can be very different. As one industry expert cautioned, “while you may own your data, obtaining a copy of it may be an entirely different animal.”[2] In other words, your client records, communications archives, and compliance documents may technically belong to you, but accessing them outside a vendor’s platform can be surprisingly difficult and costly. This gap between nominal ownership and practical control is at the heart of data portability challenges.
Consider a cautionary tale shared by an RIA executive: His firm decided to migrate from one cloud-based vendor to another and needed to export years of historical data for the new system. When they originally signed up, the contract explicitly had no termination or data export fees. But years later, the vendor’s terms had quietly changed – extracting their own data now carried a hefty charge based on database size. The quote? Over $5,000 – essentially a ransom to retrieve the firm’s information. “For my own data!” the advisor exclaimed, after discovering a new fee buried in the fine print. This anecdote is, unfortunately, not unique. Hidden in many service agreements are clauses that can saddle you with extra costs to get your data back, whether for a vendor switch or even for a regulatory audit[2].
“While you may own your data, obtaining a copy of it may be an entirely different animal.” – Gregory Friedman, wealth management CEO[2].
When firms become overly dependent on a provider’s proprietary system, the balance of power shifts to the vendor. You might feel “stuck” if the vendor makes it hard or expensive to leave. In the compliance context, this isn’t just an IT inconvenience – it can morph into a serious operational and regulatory risk.
Hidden Costs of Switching Technology Vendors
Switching compliance technology or archival providers is sometimes necessary – for new or better features, service, or pricing – but it often comes with unbudgeted costs that extend well beyond the new vendor’s subscription fee. Let’s break down some of these hidden costs:
Data Extraction Fees: As described above, some vendors charge significant fees to export your data. These fees may be based on the volume of data, and can run into multiple thousands of dollars[2]. Prior to signing on the dotted line, it’s recommended that you scrutinize contracts for clauses about data export. In many cases, firms only discover these “hostage fees” when it’s too late, leading to unexpected bills to simply retrieve emails, documents, and records that regulators require you to maintain and provide with short notice.
Transition and Downtime Costs: Moving large archives or databases from one system to another can be time-consuming. If a vendor limits how quickly or how much data you can export (for example, throttling the export rate or only providing data in cumbersome formats), a migration can drag on and on. A mid-sized RIA can encounter months of delays when migrating records from a restrictive vendor due to export limitations – a lag that can increase the firm’s audit risk while regulators wait for data[3]. During such drawn-out transitions, firms may need to keep old systems running in parallel with new ones (paying double fees) just to ensure continuity.
Operational Labor and Workarounds: If a vendor doesn’t provide easy, self-service export tools, your staff may have to resort to manual data extraction or complex workarounds. This is more than an annoyance – it devours staff hours and introduces human error potential into the project. Manually downloading batches of files or writing custom scripts to bridge between systems can drain your compliance and IT team’s productivity[3].
Operational inefficiency is a real cost: time spent wrestling with data export is time not spent on higher-value compliance work (or serving clients). As one report noted, restricted access can force firms into costly manual processes that ultimately increase error rates and resource burn[3].
Contract Termination Penalties: Beyond data-specific fees, some contracts impose penalties if you end the service early or don’t renew. These might include paying out the remainder of a term or additional charges to “decommission” your data. Always look for “service termination penalties” when reviewing vendor agreements[3]. Such penalties can make switching providers immediately expensive, pressuring firms to stay in subpar arrangements longer than they should.
Post-Term Retention Dilemmas: A subtle but crucial issue is what happens to your archived compliance records after you leave a vendor. Does the vendor retain a copy? For how long, and can you access it? Some contracts may state that upon termination, data will be deleted, or conversely, that the vendor will retain data (potentially for a fee) to aid the RIA in fulfillment of recordkeeping rules.
Clarify who controls your archived data after contract termination[3]. SEC rules require investment advisers to maintain and preserve certain books and records for at least five years (with the first two years stored in an easily accessible location)[4]. Some state regulators extend this further – for example, Washington State mandates retention for at least six years, with the first two years kept at the adviser’s principal office. If your required retention period stretches beyond your vendor contract’s term, ensure you have a plan to retain those records in a compliant manner once the contract ends. This might mean exporting everything to an in-house archive or paying the old vendor you no longer actively use just to store data.
Integration and Compatibility Costs: When moving to a new system, there can be costs to convert or normalize the data into a new format acceptable by the new vendor. If the old vendor’s export is in a proprietary or non-standard format, you may need additional software or services to translate it for the new platform. Incompatible data can also mean losing certain metadata or features (for instance, archived emails might lose original audit trails if not migrated properly). These technical friction points sometimes require hiring a consultant or using middleware – an extra cost not often anticipated in the initial switch decision.
Lost Opportunity Costs: In some cases, firms postpone switching to a better solution due to fears about these difficulties, effectively paying an “opportunity cost” by continuing to pay for (and use) suboptimal technology. This can mean missing out on efficiency gains or new features that improve compliance oversight (e.g., advanced surveillance or analytics). It’s worth noting that staying with a poor vendor also has a cost, even if it’s harder to quantify.
The total cost of compliance includes the soft costs of inefficient processes – and vendor lock-in can perpetuate those inefficiencies.
Compliance Risks Lurking in Vendor Lock-In
Beyond dollars and cents, limited data portability creates compliance risk exposure. Regulatory obligations for RIAs demand that records are readily accessible and complete. In practice, this means firms must be able to promptly produce required documents – often with the most recent two years of records kept in an easily accessible location [4] – and retained for the full required period. Always organize and store your compliance records in a manner that meets these accessibility standards, to be prepared for inspections or audits. If you can’t promptly produce required records because they are tied up in a difficult-to-access system, your firm could land in hot water.
Under SEC Rule 204-2, RIAs must preserve key records for a minimum of five years, with the first two years in an “easily accessible” place[4]. Many states mirror this standard or impose longer durations (often following NASAA’s model rule); for instance, Washington’s regulations require investment advisers to keep records for at least six years, the first two in the firm’s principal office. If your records are trapped in an old system that you’ve terminated access to, they are definitely not “easily accessible.” In fact, firms have been cited in examinations for failing to retain or promptly produce records when a vendor relationship changed. Imagine the scenario: you switch email archiving providers, but six months later the SEC comes knocking for emails from last year. If you’ve already lost access to the old archive and haven’t migrated everything, your firm could face an exam deficiency or enforcement action for a books & records violations.
Vendor lock-in can also stifle innovation and increase operational risk. Firms stuck with an incumbent vendor might be unable to integrate their archived compliance data with modern analytics or surveillance tools, as the system may restrict data interoperability (aka: it might not “play well” with other systems). RIAs are in a similar boat as other businesses which rely on technology: true data sovereignty means being able to “back out of agreements to migrate” to better platforms when desired, and organizations that fail to plan for portability may find themselves “locked into specific vendors… unable to fully leverage their data as they scale.”[6]. In other words, lack of portability can prevent you from using your own compliance data proactively – whether to feed into AI tools for compliance testing, or simply to aggregate information across platforms. This is a hidden strategic cost: your compliance program might lag behind because you literally can’t free your data to use in new, beneficial ways.
Regulators and industry leaders are increasingly aware of this issue. Achieving true data portability across different systems remains difficult – even major studies note that due to differences among providers, full interoperability and portability can be “difficult to achieve” [7]. In practice, this means firms must plan ahead to mitigate vendor lock-in. Be sure to negotiate and document exit provisions in your cloud contracts (e.g. rights to obtain your data in usable format), and estimate how you would switch providers (via bulk exports, APIs, etc.) if needed. Today’s technology for seamless data transfer is still evolving, so a proactive plan is essential to avoid being stuck with one vendor. Likewise, consumer protection regulators are pushing the envelope on data portability: the CFPB’s new Open Banking rule will require banks and financial providers to “unlock an individual’s personal financial data and transfer it to another provider at the consumer’s request for free.”[8] The logic is that consumers shouldn’t be stuck with a bad service because their data is hostage. By analogy, your firm shouldn’t be stuck with a subpar vendor because you’re afraid of losing access to compliance records.
Best Practices: Ensuring Data Portability and Vendor Flexibility
Data portability might sound technical, but it boils down to a simple principle: your data, your control. To ensure you’re not caught off-guard by hidden costs or risks, consider these best practices when engaging compliance tech vendors:
Vet Contracts for Portability Terms: Before signing with any vendor, read the contract (many firms bury the details in online Terms of Service accessible through a hyperlink in a digital contract) for clauses related to data export, retention, and termination.
Ask very specific questions up front about costs for data retrieval and the process involved[2]. Some questions to consider: Will the vendor help you export all your data if you leave? In what format? Is there a fee? Is the fee waived if the data is for regulatory purposes (e.g., an SEC exam)? Don’t accept vague answers – get commitments in writing. A reputable vendor should not shy away from guaranteeing your right to export your own records. As Greg Friedman advised fellow advisers: “Don’t let vendors hold your data hostage.”[2]
Negotiate Notification of Changes: Search contracts for provisions that require the vendor to notify you of any material changes in terms, especially those involving fees or data handling. In the earlier example, the RIA’s vendor slipped a new fee into an online agreement that was simply clicked through on login[2].
To avoid such sneak attacks, insist on a contract clause that the vendor must inform you (via direct notice) of any change to data ownership, access, or fees. This way, you have an opportunity to push back or plan accordingly, rather than discovering after the fact.
Maintain an Exit Plan (Vendor Divorce Strategy): Don’t wait until things go south to figure out how to get your data back. From day one, formulate an exit plan for each critical system. In fact, official U.S. government guidance like GSA’s Modernization and Migration Management (M3) Playbook emphasizes that thorough upfront planning is crucial to reduce risk [9] – which includes defining an exit strategy early to avoid getting locked into a single provider. Define how you would migrate to another platform if necessary – including data export procedures, timeframes, and ownership rights – so that if a breakup with the vendor occurs, you can transition smoothly.
This may involve scheduling regular exports or backups of your data in a format you can store securely elsewhere. For instance, some firms perform quarterly exports of archived emails and documents to an in-house repository or a neutral storage service, ensuring they always have the latest records independent of the vendor.
Firm’s should know how long it would take to fully migrate to an alternative, should the need arise (e.g., if the vendor were to suddenly shut down or if you have to terminate your contract quickly). Some forward-thinking firms even negotiate post-termination access periods – for example, the contract might allow you to access the platform for 60 days after termination purely to retrieve data. This can serve as a safety net.
Leverage Standard Formats and APIs: When possible, use vendors that support open standards for data export (such as CSV, JSON, PDF outputs of records, etc.) or provide robust APIs. Open standards increase the likelihood that another system can read your data without loss. APIs allow you to systematically pull data, which can be useful for continuous backups or migrations.
The tech industry’s shift toward interoperability is your friend. Major cloud providers now offer data migration utilities and support open formats to help customers avoid lock-in [10]. For example, many services provide export functions or APIs that let you retrieve your data in standardized formats.
Taking advantage of these portability tools can make it easier to move your records elsewhere if you ever need to change vendors, reducing the risk of being tied down. In the compliance realm, some archive providers have responded by offering free, self-service data export for their clients at any time, with no fees or barriers[3]. Such features are invaluable; they indicate the vendor won’t hold your records hostage. When evaluating solutions, ask for a demo of the data export process to see how easy it is.
Periodic Contract Reviews: Set a calendar reminder to review your vendor contracts annually (including all those click-through terms that may have updated). Ensure someone in your firm is tasked with tracking any revisions the vendor makes[3]. Over a multi-year relationship, services often evolve – storage limits, pricing models, or policies can change. Don’t assume the deal you signed on day one remains the same for years to come. By catching changes early, you can negotiate preferred pricing or at least avoid being ambushed by a new fee or policy. Additionally, periodically reassess whether the vendor is still meeting your needs and how easy it would be to transition if required, updating your exit strategy accordingly.
Test Your Data Recovery (BCP Integration): Periodically test-export a sample of your data to ensure you can access it outside the vendor’s platform. For example, download a month’s worth of records and open them on your own systems – this can reveal any format or completeness issues before a high-pressure situation like a regulatory exam. If the exported data is incomplete or not easily readable, work with the vendor now to fix it. Include these recovery tests as part of your annual Business Continuity Plan review. (Regulators emphasize the importance of such testing – SEC staff guidance observed that some form of BCP testing is conducted at least annually by many firms [11].) By making data-recovery drills a routine part of your BCP, you ensure compliance continuity even in a disruption.
Embrace a Culture of Compliance Ownership: While technology partners are incredibly helpful, always remember that compliance responsibility ultimately stays with your firm. This mindset will drive you to maintain copies of critical records and not rely on any single point that could lead to widespread failure. It also means if a vendor isn’t living up to expectations (e.g., frequent outages, slow retrieval that could put you at risk or updates to terms not agreeable with your firm), you’ll be quicker to take action, because you know it’s your regulatory duty on the line. The SEC and expect firms to be in control of their records environment[5]. Demonstrating that control – for instance, being able to promptly hand over any required data during an exam – shows regulators you are on top of your obligations and not “asleep at the wheel” with a third-party.
By implementing the above practices, firms can significantly reduce the hidden costs associated with vendor lock-in. In fact, the industry is gradually moving toward more data portability as a norm. Market pressure and regulatory attention are encouraging vendors to offer flexibility. For example, some modern compliance software providers now market “data freedom” pledges – promising clients full control and unfettered export of their data[3]. These are positive developments aligning with the idea that, as one CIO article put it, ensuring data portability “empower[s] organizations to grow without fear of lock-in or compliance risks.”[6] In other words, portability isn’t just about IT convenience; it’s about enabling your business to evolve and stay compliant without unnecessary friction.
Conclusion: The True Cost Includes Control (Not Just Price)
When assessing the “true cost of compliance,” it’s easy to focus on obvious line items: software licenses, consultant fees, exam expenses, etc. But as we’ve explored in this post, the ability to control and transfer your data is a critical cost factor that often flies under the radar. A solution that seems affordable upfront might become far more expensive if it penalizes you on the back end with extraction fees or, worse, exposes you to compliance violations because you can’t get your records out in time. Conversely, investing in a slightly pricier solution that guarantees data portability could save you immensely in avoided headaches, surprise bills, and regulatory trouble.
In summary, always factor in data portability and vendor flexibility when calculating the total cost of any compliance tool or service. The goal is to never be in a position where your firm’s compliance program suffers due to vendor issues. By planning ahead, negotiating intentionally, and retaining copies of vital data, you enable your firm’s compliance program to be agile, auditable, and fully under your control – as it should be.
Stay tuned for the next article in this series:
“Archive vs. Backup – What’s the Difference and Why It Matters.”
We will clarify how archival systems and backup systems differ, and why both are crucial (in different ways) to a robust compliance strategy.
Corrie Scoby
Chief Consultant & Owner, Three Lumos Consulting, LLC
We guide RIAs with clarity, integrity, and partnership—so you can spend less time on compliance and more time serving clients.
Note: This article provides general information and does not constitute advice. Consult your compliance team for guidance specific to your firm.
Sources
[1] Corporate Compliance Insights — The True Cost of Compliance
[2] Investment News — TECH TALK: 3 critical tips for working with data vendors
https://www.investmentnews.com/fintech/tech-talk-3-critical-tips-for-working-with-data-vendors/53567
[3] Smarsh — Breaking Vendor Lock-In: How Financial Firms Gain Compliance Freedom with Smarsh
[4] SEC — Investment Adviser Codes of Ethics
[5] IQ-EQ U.S. — SEC’s Off-Channel Communication Enforcement
[6] CIO — 3 keys to defining data sovereignty: Security, privacy, and portability
[7] GAO — Cloud Computing
[8] Consumer Financial Protection Bureau — CFPB Finalizes Personal Financial Data Rights Rule to Boost Competition, Protect Privacy, and Give Families More Choice in Financial Services
[9] GSA — M3 Playbook
[10] AWS — Unpicking Vendor Lock-in
[11] Godfrey Kahn — Investment Management Legal and Regulatory Update – July 2016
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