The amount of spending on regulatory compliance and investment compliance, while stepping up significantly, does not constitute staggering amounts, however. Only the very largest firms, those with 5,000 or more employees, expect to spend more than $11 million a year. Fully one-fourth of firms expect to spend under $1 million. The average spend, however: $9.6 million.
The result is similar for investment compliance spending.
Only in this case, fully one-third of firms expect to spend under $1 million a year. The average spend is expected to be $7.5 million and the midpoint, the halfway point among all firms, is $500,000.
The rise of reform and the need to manage it is seen at the highest levels of the executive suites, as well.
Almost two-thirds of respondents, 65%, indicated that their firms now employ a dedicated chief compliance officer. Another 36% have chief risk officers.
This is slightly lower, however, than last year's poll. In the 2011 survey, 67% of respondents indicate their firms had chief compliance officers - and 42% had chief risk officers.
Why does any of this matter?
Forty-five percent of respondents said because the outcomes affect their firms' bottom line performances. Another 38% said it affected their firms' ability to grow. And 36% said it affected their ability to innovate.
Fund Firms Not Getting Social
The returns are in.
Fund firms still do not 'like' social media.
Two-thirds of respondents-actually 68%-said they are either "not" or "not very" active in the biggest social network, Facebook, when it comes to communicating with customers, according to the 2012 Money Management Executive regulatory outlook survey.
And that kind of disengagement is present across the social media spectrum. Seventy-six percent are not very active with YouTube, the video presentation site. Another 64% are not active with Twitter, the 140-character message site. And more than half of respondents, 52%, say their firms are not even involved on LinkedIn, the social network for communication between career professionals.
It gets worse, when it comes to marketing directly at customers. This, of course, can get tricky with regulators. Fund firms don't want to get stuck making promises about their products that they can't keep.
For marketing, 78% avoid YouTube, 77% avoid Facebook and 66% avoid Twitter. But get this: 79% avoid LinkedIn.
LinkedIn does have one practical purpose: 30% of respondents say their firms use it for recruiting talent.
But maybe not for social media communications with and marketing to customers.
Here are some comments from respondents as to why:
Social media is social media. It's just basically getting education out there to our targeted audience. Do we put specifics of our products and strategies? No. Do we think it will make us money? No. It is just a channel you can't ignore.
- FINRA doesn't have a clue what they are getting themselves into.
- We're very cautious about describing portfolio holdings, strategies, and discussions of that nature. Don't want to be on FINRA's "list."
- Concerns over regulatory implications have prevented our firm from entering the social media space. However, we use LinkedIn to search for candidates (not to post).
- We still rely mostly on word of mouth.
The Business of E-Business
The time is fast approaching when advisors and brokers may not even meet their clients when they sell them shares.
Propsecti can be sent electronically. Explanations carried out by Skype or iChat. Signatures sent back online.
What kind of complications might be in store? Or will this be a better way of doing business?
Here are some pros' responses:
- A fully electronic sale would make this process much easier to comply than a paper version where someone could just sign off that they got the disclosure doc without really getting it.
- At first it will be difficult and then easy.
- As long as investors check a box saying that they understand the information, an e-signature should hold as much weight as pen and ink.
- This is a digital world. Set up bulletproof processes and do not deviate from those processes.
- If an investor tries to rescind a transaction, how can you prove that an investor downloaded and accessed (I am deliberately not using the term "read") the prospectus?
- The challenge is creating a trail through the electronic (website) process whereby you can validate the investor actually looked at the prospectus. There is no way to confirm they actually read it.