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Compliance: Should you go it alone?

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As small-business owners, financial advisors are often tempted to operate as their own chief compliance officers, but they first must understand the basic tenets of compliance in order to protect their firms.

The duty can’t be taken lightly because firms that don’t make compliance a priority can get into a heap of trouble.

To start, advisors must weigh the benefits of saving money by managing compliance themselves against the risk of possibly missing something that a professional compliance officer might catch, says Michael Shaw, managing director of professional standards and legal at the CFP Board.

CFP professionals are required to abide by the board’s ethical standards, regardless of whether they personally serve as compliance officers or hire someone else to do so, he says. The CFP board has no enforcement authority over state and federal rules and regulations, however.


But the Compliance Programs Rule under the Investment Advisers Act of 1940 requires each registered investment advisor to designate a CCO to administer its compliance policies and procedures.

The CCO should be competent and empowered with the authority to not only apply the rules but have sufficient seniority and authority to compel others in the firm to comply with the rules, compliance experts say.

“When a financial advisor hangs out their shingle it usually starts as a one- person operation,” says Nancy Lininger, founder-consultant of The Consortium, a compliance consulting firm based in Camarillo, Calif. “When the income starts to flow, the owner usually reaches out for assistance.”

Because most subsequent hires are unlikely to take on a compliance role, the owner ends up wearing many hats, making it difficult to both effectively run the business and be the CCO, Lininger says.

At this point, and preferably earlier, the owner CCO should seek knowledgeable help, she says.

“Such assistance could either be a compliance manager [employee] who acts under the direction of the CCO or an outside compliance consultant or attorney to supply the necessary support to the CCO,” Lininger says.


The CFP Board has a number of online resources to assist planners in complying with the board’s ethical standards related to establishing and maintaining the compliance office function.

They include a sample written agreement to satisfy the written agreement requirement between an advisor and a client.

Other tools include a sample disclosure form, a sample guide and a compliance checklist.

Bruce W. Fraser is a financial writer in New York and contributor to Financial Planning magazine. He can be reached at brucewfraser@gmail.com

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