The amount of time spent on investment advisor compliance will vary widely between firms. Compliance for a registered investment advisor (RIA) firm will depend on the following:
o Is the investment adviser firm registered with the SEC or with the states?
o If registered with the states, which state(s)?
o How many supervised persons or investment adviser representatives (IARs) are there?
o What types of advisory services does the RIA offer?
These are just a few. Every RIA needs compliance (and lots of other stuff), but the first question to ask is: Who is going to do the RIA’s compliance? That should be answered before moving on to: What do I need to do?
I have bypassed the question of who is responsible, or accountable, if something goes wrong or if something is missed. However, RIAs often overlook this important point, so I want to address it. In the end, it is the RIA that is accountable to the regulators. By direct or indirect extension, the owners, executives, including the CCO, and firm principals are responsible and accountable. Exactly who is responsible will depend on the firm and the facts and circumstances surrounding the problem.
Now, back to “who is going to do the RIA’s compliance.” The firm can either have an internal person or a compliance firm do it. So, which is better? One of the best ways to work this out is to give an example.
Suppose you solely own your RIA, and you are the sole person providing investment advice. You may have one or two employees, but perhaps they are in marketing or administrative support roles. You could have one of those employees “do the compliance” but as the owner you are still responsible for the outcome.
So, you then think that, if I am responsible anyway, I may as well do it myself. The long and the short of it is that there is no “right or wrong.” As the owner of the firm, you can decide who does it. But do you actually want to do it? Do your employees actually want to do it? For good reason, you or they may not want to actually work on the RIA’s compliance.
Keep in mind that not wanting to handle compliance tasks does not mean you are shirking your fiduciary duty in any way. It just means that you would rather be doing besides compliance. Chances are you did not get into the investment advisory world to do RIA compliance.
If you are an investment adviser and you are reading this, undoubtedly you care about it on some level.
However, if you do not have an interest in learning about it and feel like it will take up time that would be better spent doing something else to help your firm, then you should hire an RIA compliance firm.
Many RIAs outsource investment management, so why not compliance?
