RIA Compliance and Practice Management Blog

When and When Not to Work with an RIA Compliance Consultant

Posted by RIA in a Box

Sep 23, 2015 9:00:00 AM



As registered investment adviser (RIA) compliance consultants, two common questions we hear from principals of advisory firms are: 1) why should I work with a compliance consultant? and 2) how does your firm's service compare to that of a law firm? These are great questions and we wanted to use this post as an opportunity to discuss the different scenarios in which it does and does not make sense for an RIA firm to work with a compliance consultant.

The Advantages of Preventative Care Compared to Emergency Room Care

Think about a compliance consultant much like one thinks about utilizing preventative care rather than always heading to the emergency room (ER) for healthcare needs. ER care is expensive and ideally not utilized unless absolutely necessary. The right RIA compliance consultant should help keep an investment advisory firm out of trouble by keeping the firm aware of the relevant rules and providing the human expertise and technology platform to help the firm meet its ongoing regulatory requirements.

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On the other hand, the closest equivalent to ER care in the RIA world is the use of securities lawyers. To be clear, when an issue arises, paying top dollar for a competent securities lawyer is the right path to take. However, utilizing expensive legal support billing by the hour to help with daily compliance management and audit preparation can be quite costly. The cost structure of many law firms prevents them from being able to provide cost efficient investment adviser regulatory support.

Often, we receive inquires from advisory firms that have just received notice that the firm has a regulatory issue that is being referred to a state or federal level enforcement division for potential legal action. Unfortunately, by that point, the RIA firm is in much more need of a securities lawyer rather than a compliance consultant. When a firm already has a serious issue with a regulator, more affordable preventative regulatory care is no longer a option. Our RIA compliance consulting service does not provide any form of legal support and we are always very upfront about that with our clients.

Our Core Beliefs as Investment Adviser Compliance Consultants

  1. As RIA compliance consultants, we strongly believe in the value of "compliance best practices" as valuable tools to help a firm establish the proper "culture of compliance" that regulators want to and expect to see. We also steadfastly believe that it is very rarely in a firm's best interest to take an adversarial approach with a regulator. Generally, such an approach only leads to a stack of legal bills that could have been avoided.
  2. We also recognize that the vast majority of RIA firms have a Chief Compliance Officer (CCO) that is a bit overwhelmed as he or she is more commonly than not wearing multiple hats at the firm. In such cases, the ability for the CCO to have an experienced former regulator or compliance expert on call to help them navigate the relevant regulations can be quite valuable and cost efficient. We are the first to acknowledge that RIA compliance is not rocket science, but it does require a significant time investment to get up to and stay up to speed on the latest requirements. Unfortunately, most RIA firm principals are not only wearing the CCO hat, but also being tasked with managing the firm, making investment decisions, and meeting new prospects. As such, the return on investment (ROI) in being able to call an expert and immediately receive the right answer or being able to access a library of compliance document templates can be compelling.
  3. We also believe that the CCO role should never be "outsourced" to a third party or person who is not a principal of the RIA firm. Firms like ours can assist a CCO wearing multiple hats with proper training and guidance, but it's still essential that the firm's CCO be someone at the firm that is empowered with full responsibility and authority to develop and enforce the appropriate policies and procedures for an advisory firm. 
  4. Furthermore, our investment adviser compliance consulting service does not charge for services by the hour. We do not want to discourage a client from reaching out to us to discuss a concern because of the fear that the "hourly billing clock" will be running. We offer unlimited phone and email support because quite frankly it is a far superb client experience and also alleviates the administrative burden on both parties to track and verify an hourly invoice. By charging a flat monthly fee, we also allow an RIA firm to be able to more confidently budget future compliance expenses.
  5. Lastly, we fully recognize the value that technology can bring to help advisory firms better and more efficiently manage their regulatory requirements. For example, our MyRIACompliance┬« investment adviser compliance software solution provides each of our clients with a robust online platform to manage of all of their firm's regulatory responsibilities in a more efficient manner. It also provides each firm with a tailored and fully customizable compliance calendar which we believe is critical in helping to establish an organized compliance program regardless of the size or complexity of an advisory firm.

Shifting Compliance Needs of Larger RIA Firms

In addition to existing regulatory problems, there are also some common RIA business scenarios in which the "expertise" value of a traditional compliance consultant may be diminished. The most common scenario is one in which a large advisory firm has a qualified and experienced Chief Compliance Officer (CCO) on staff along with a strong internal compliance team. In such a case, the advisory firm may be better served working with a compliance consultant less so for regulatory expertise but rather as a more affordable, outsourcing of labor option in which the consultant may assist with regulatory filings and firm and individual investment adviser representative registrations. Often, significant savings can be achieved by utilizing a third party that specializes in such services. In general, we see this type of relationship as most valuable to firms with one billion or more in assets under management (AUM).

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Topics: 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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