It has been 10 years since the sec implemented compliance rules for mutual funds and ETF providers, and one thing is clear, firms must implement a vigorous and credible program. Based on various studies, firms should spend at least one basis point of total assets on compliance with a minimum of 5% of revenue or 7% of operating costs. If you are a small fund with limited resources, a new fund, or an established fund looking to make compliance more of a priority, you should assess your needs and resources with the same calculated analytics that you apply to other parts of your business. Here are some considerations to incorporate into your line of questioning to ensure you spend wisely.

First, you need a competent chief compliance officer with the appropriate knowledge, skills and training to navigate today's complex regulatory environment. The SEC is committed to supporting the role of CCO and not holding funds and ETFs responsible for the isolated actions of rogue employees - as long as it has a comprehensive compliance program in place.

Firms employ several compliance models. Some tap an in-house compliance expert to serve as CCO. Others retain a compliance service firm that specializes in fund compliance. Still others use a hybrid model by having a small in-house staff supplemented by an outside firm. With the increased complexity and visibility of SEC oversight, all firms should consider utilizing a reputable independent compliance partner to create your firm's "culture of compliance."

A compliance services firm should be one of your trusted partners, along with your lawyer and auditor. Recent studies show that 2/3 of investment advisers utilize a compliance services firm to run or supplement their program.

As you might imagine, there are a host of players offering a range of services from advisory-only models to acting as your firm's CCO and becoming an integral partner in your firm's success. So how do you sift through the clutter and buy the services and quality you need?

1. Depth of compliance knowledge. Most compliance professionals and third-party consultants have "experience." You need a CCO who has demonstrated depth and execution skills. Make sure you thoroughly investigate the firm or person you hire to ensure they have a strong track record in the industry, knowledge of best practices, and the know-how to implement a comprehensive testing program.

2. Accountability and control. One advantage to internal CCOs is they report to, and are accountable to senior management who determines their pay and tenure. Internal CCOs are mindful of the impact of their actions and are skilled at adjusting their message accordingly. Moreover, they are often personally responsible for compliance lapses within their control.

3. Transparency and strategic vision. It is not enough for a CCO to know the answer to complex questions. He/she must establish a robust compliance program that fits with your strategic priorities. Regardless of whether you outsource or hire internally, you want someone whose work is transparent and who designs the compliance program with openness and clarity so you can see the connection to your business goals.

4. Ongoing support. Your firm's compliance program requires constant vigilance. Many consultants offer 24/7/365 access to a team of compliance experts. They may also provide daily/weekly/monthly reporting.

5. Cost. You should view the compliance function like your other business functions such as marketing, operations, and legal. Compliance professionals involve a significant HR investment. Generally, you are going to spend six figures to attract and retain a seasoned professional. Compare the available talent against the personnel offered by a compliance firm.

Hiring an outside provider that is staffed with professionals who have a breadth of experience can be a cost-effective answer. The provider can establish a service model and financial arrangement tailored to meet your needs. A qualified top-shelf provider can serve as your CCO, give support and advice, or work on a specific set of services to support your in-house department.

Whether you choose an internal resource, a compliance services firm, or a hybrid model, having a strong compliance program that can withstand regulatory scrutiny makes good business sense. Investing in compliance will not only help you avoid fines and sanctions, it will keep your firm out of the headlines and let you concentrate on growing your assets.

Final point, think ahead--when your letter arrives that the SEC is coming for an exam, you don't want to regret having underspent on your compliance program.

Emily Silva is a director at Cipperman Compliance Services.


1. Are you open to making the best strategic move to improving your compliance program?

Consideration: Promote from within, hire a Chief Compliance Officer, or look for an external provider.

2. Does your compliance team have depth, experience, and execution skills?

Consideration: Make sure your resource selection has the breadth of knowledge necessary to implement an effective compliance program. A group of experienced professionals will have more regulatory knowledge than any one person a firm could hire.

3. Who will actually do the work? Accountability is important!

Consideration: Look for a resource that holds itself accountable for all outcomes. The selected resource should support you fully, and, if necessary, lead you during an SEC examination.


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