Mutual fund and ETF managers are wrestling with rising costs of compliance and the demands that come with a changing regulatory world, Money Management Executive's latest regulatory survey shows.
Take compliance for example. When asked how much they spent on regulatory compliance in 2013, the majority of respondents cited "under $1 million" and "I don't know," indicating, perhaps, a greater need for education and transparency among firms on the issue of compliance.
"I'm not surprised by that response but it's the wrong response," says Todd Cipperman, our regulatory columnist and founder of Cipperman Compliance Services, which caters to funds, advisors, and broker-dealers. Cipperman specifies that money management firms should spend at least 5% of revenues on compliance.
Money Management Executive's survey also indicates that a total of 40% of respondents expect their organization's total spending on regulatory compliance to increase by more than 10% in 2014, but if you don't know what you're spending now, how do you increase by more than 10%? According to Cipperman, there's a lack of analytical information given to management on compliance, which should be subject to stricter budgetary oversight.
Social media is another aspect where mutual fund and ETF providers are struggling to keep pace. When asked how active respondents are using Facebook, Twitter, LinkedIn and YouTube for communicating with customers, the numbers reflect a tenuous grasp on most social media, with the majority of respondents "not at all active" or "not very active." LinkedIn, however, was (by comparison) the social media exception, with 17% of respondents being "very active" on the site. Respondents cited advisor websites and e-mail as preferred methods of communicating with customers. The mutual fund industry, which has embraced more traditional marketing approaches over the years, may be slower than newer products to make use of the latest marketing tactics.
But is relatively lackluster social media use - mainly for marketing efforts - among mutual fund providers a function of being a so-called legacy business, as Cipperman says, or a result of regulatory uncertainty? When asked about the extent that social media activities are restricted by uncertainty about SEC or FINRA regulation on their use in promoting business interests, the majority of respondents' answers fell between "somewhat restricted" and "highly restricted."Sources, however, note that this is misleading. Marketing is an intrinsic aspect for mutual fund and ETF providers. "This may be a function of not understanding the rules rather than the rules being somehow uncertain," Cipperman says.
Read on to discover other insights gathered from our annual survey. Clearly, from compliance to social media, the regulatory world is presenting new challenges and questions for money managers.
Paula Vasan, managing editor of Money Management Executive