U.S. enforcement activity is up nearly 25% during the first half of the year, following one of the worst pandemics we've witnessed over the last few decades. To make matter worse, regulatory compliance isn’t exactly the easiest area to navigate — in fact getting it wrong can be both expensive and damaging to a firm’s reputation. Bringing in a third party expert can often be a considerably sensible solution, although the decision is highly dependent on the specific scenario a firm finds itself in.
If you’re still sitting on the fence about whether to bring in a regulatory compliance consultant, here are a few pieces of advice that might just solidify your decision.
Ten Cases to Consider
Many firms convince themselves that their situation is completely unique, meaning they can’t possibly decide whether they need to hire an RIA compliance consulting firm based on “generic "advice. While every company certainly has its differentiating factors and particularities, here are ten common circumstances when hiring a consultant makes sense.
- After appointing a new Chief Compliance Officer ("CCO") — especially if that officer has no (or limited) compliance background.
- When the Chief Compliance Officer (experienced or otherwise) doesn’t have enough time to dedicate to carrying out regular monitoring and compliance tests. Thorough testing. This is key.
- If the Chief Compliance Officer has fallen behind on compliance-related work, is using an outdated manual, or is generally failing to handle compliance efficiently. Compliance is ever changing and updates are needed on a consistent basis to keep up with new rules, regulations and not fall behind. The experts are in the know so that you can focus on other items in-house.
- After the Chief Compliance Officer resigns and there is no one else in the firm to replace them.
- When setting up a compliance program due to registering for investment advice. New launches, new build-outs, or transitions (e.g., state registered adviser to federal registered adviser, or exempt reporting adviser to registered investment adviser).
- If the current RIA is acquiring another company or undergoing a merger, meaning they’ll have completely different investment products and advisory representatives (possibly in hard-to-reach branch or remote locations).
- After the company receives a request for documents from the Securities and Exchange Commission (SEC) and needs help answering the questions and completing the process. SEC or FINRA audits. State audits are very common as well.
- After the SEC sends a deficiency letter to the firm discussing concerns regarding compliance to the rules and regulations for investment advice or the capability of the Chief Compliance Officer. The SEC is looking for the firm to remediate immediately. You will want an expert assisting you.
- If the firm plans to start a private investment fund or intends to advise/sub-advise a mutual fund.
- After the firm attracts institutional investors that want to invest but need to carry out an independent review of the firm first.
How Compliance Consulting Firms Can Assist
In addition to finding themselves in one of the situations outlined above, firms may benefit from contracting compliance consulting firm for one of the following reasons:
- To create and manage a highly customized compliance calendar.
- To conduct ongoing compliance testing and audits so there are no surprises when the SEC or FINRA steps in for an examination.
- To draft a compliance program annual review.
- To conduct a comprehensive risk assessment.
- To allow compliance staff to focus on strategy rather than routine tasks.
- To carry out a plethora of regulatory filings and email reviews. This can be daunting and we encourage firms not to miss deadlines.
Whether they need help with complex processes, basic tasks, or something that lies between the two, bringing in a third-party consultant is often a smart move — why struggle needlessly with something you can delegate elsewhere?
Bring in a Safe Pair of Hands to Keep You SafeAt RegComp Financial, we specialize in aiding CCOs, investment adviser firms, broker dealers, venture capital firms, hedge funds, and private equity firms to build, manage, and master their compliance efforts. Compliance requires expertise. Get in contact today to find out how we can help you.