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Culture of Compliance

Tuesday, August 26, 2014

As my Compliance career has progressed, I’ve noticed a few recurring themes like, we sure could use more Analysts and there must be better a better way. While that may be the same sentiment in other industries; a recent survey by Cipperman Compliance Services (“CCS”) indicates that my assumptions were correct. They found that the compliance function in the surveyed firms tended to be underfunded and understaffed. Their survey included asset managers, broker-dealers, alternatives managers and wealth managers.

A number of findings, while no surprise at all, were a little troubling including, 74% of respondents (responsible for compliance duties) believed that their firms should commit more resources to the compliance function and 83% of broker-dealers and 58% of asset managers said they needed to focus more resources on compliance.

Compliance is your level of protection for your Clients, the Advisors and for the firm itself. According to the old adage, “the best defense is a good offense” and I tend to agree. When compliance is understaffed and/or underfunded, the process becomes reactionary or defensive, with only the resources to respond to issues as they arise rather than taking the offensive and trying to uncover weaknesses in the system before there are problems.

So what kind of commitment to compliance would be adequate? Todd Cipperman the Chief Executive Officer of CCS says, “Firms should spend a minimum of 5% of revenues or 2 bps of assets under management on the compliance function. Investing in compliance protects the franchise and preserves assets under management. We view compliance as the firm’s defense. And defense wins championships.” I couldn’t agree more.

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