RIA Compliance and Practice Management Blog

What roles does a compliance consultant play to help a RIA firm's CCO?

Posted by RIA in a Box

Sep 27, 2014 10:00:00 AM

Every year, as RIA compliance consultants, we begin assisting hundreds of new and existing registered investment adviser (RIA) firms with compliance.  Given the diverse array of types and the sizes of RIA firms, there is generally no standard for knowledge of compliance or previous experience performing compliance duties among the advisory firms. The Chief Compliance Officer (CCO) at many firms does not have any compliance background. While at other firms, the CCO may have a very strong investment adviser compliance background and was hired to focus exclusively on helping the RIA firm meet its regulatory compliance obligations.

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Regardless of the level of expertise or experience of a firm's CCO, often an RIA firm will choose to hire an outside consultant to help assist with the firm's ongoing compliance responsibilities. This is a bit more common for investment advisory firms that have a CCO with a more limited compliance background (e.g. a principal wearing multiple hats). However, we do still see a significant number of RIA firms with a very experienced Chief Compliance Officer that still wish to engage a RIA compliance consultant to improve operational efficiency by helping with some of the basic functions and to have additional expertise to tap into.

Once an RIA firm has hired an outside compliance consultant, we often hear the question, "So what are my responsibilities as the CCO?" The first thing to know is that every investment advisory firm must designate someone on its staff to be the Chief Compliance Officer. However, it is not required that this individual only serve as the CCO, and far more commonly, the individual designated as the Chief Compliance Officer will also hold many other titles. Often, the principal or one of the principals of the firm will serve in this role. Meridian-IQ reports that close to16,500 firms are owned or managed by a single principal. In other words, more than half of all RIA firms are owned and operated by a single principal that is also assuming CCO responsibilities among his or her many other titles.

While firms like ours can provide an RIA firm with CCO training, compliance checklists, access to webinars and other educational materials, assistance with required firm and individual investment adviser representative filings, access to compliance management software, and the ability to speak to a RIA compliance expert such as a former regulator, the ultimate responsibility to fulfill the firm's compliance responsibilities is still in the hands of the firm and its CCO. The good news is that the right compliance consultant can greatly simplify a firm's compliance responsibilities by improving efficiency and by allowing the firm's principal to sleep easier at night knowing that he or she is doing what they need to do to stay compliant and staying up to date on the latest regulatory rules changes. 

The right compliance consultant will also help an investment adviser firm properly prepare for a state or SEC audit. However, it is very important to note that the regulator conducting the examination expects the firm's CCO or other designated team members to answer any questions and take them through the required compliance files, client documents, filings, etc. In short, the CCO of an RIA firm must always know what is going on and be on top of the firm's compliance responsibilities. However, a qualified RIA compliance consultant can give an investment advisory firm the tools and guidance to build and document the proper culture of compliance that can make the firm's audit process a much less stressful endeavor.

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Topics: RIA Operations, RIA Compliance

RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.

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