RIA Compliance and Practice Management Blog

When Does an RIA Need To Hire a Dedicated Chief Compliance Officer?

Posted by RIA in a Box

Nov 23, 2016 12:36:15 PM

 

*Last updated July 17, 2019

As registered investment adviser ("RIA") compliance consultants, we are frequently asked the question "when does an RIA firm need to hire a dedicated Chief Compliance Officer ('CCO')?" While there are no absolute guidelines, a recently released study from Charles Schwab does help to address this question. The 2016 RIA Benchmarking Study released in July 2016 contains self-reported data from 1,128 firms categorized into 12 peer groups- 7 wealth manager groups and 5 money manager groups according to assets under management ("AUM").

 Download Our Free How to Prepare for an RIA Regulatory Exam Checklist

RIA Chief Compliance Officer Hiring Insights from the Study

The study reports the following percentage of firms across these four AUM categories employ a full time, dedicated Chief Compliance Officer:

  • Over $1 billion: 55%
  • $500 million to $1 billion: 29%
  • $250 million to $500 million: 14%
  • Under $250 million: 7%

Vast Majority of RIA Firms Do Not Emply a Full-Time, Dedicated Chief Compliance Officer

Looking at the latest SEC RIA public filing data as of November 2016, we can provide a rough projection as to what percentage of the ~35,000 total RIA firms registered at the state and federal level have hired a dedicated, full-time CCO. The current number of SEC-registered RIA firms by AUM segment is approximately:

  • Over $1 billion: 3,300
  • $500 million to $1 billion: 1,458
  • $250 million to $500 million: 1,931
  • $100 million to $250 million: 3,387

There are presently 10,076 registered firms with $100 million or more in AUM. In addition, there are approximately 25,000 investment advisory firms with less than $100 million in AUM with the vast majority of those firms registered at the state level. 

In our observations over the years as RIA compliance consultants, around 3% firms with less than $100 million have a full time, dedicated CCO. If we couple our observations with the data revealed across AUM segments by the Schwab study as to what percentage of firms employ a full time, dedicated CCO, we are able to make the following industry-wide projections:

NumberOfRIAFirmsThatHaveAFullTimeChiefComplianceOfficer.png

As the above chart reveals, the RIA industry is highly fragmented and only around 10% of firms likely employ a full-time CCO. Furthermore, the majority of full-time CCOs are employed by large firms with $1 billion or more in AUM. There is a lot of misinformation that has been published over the years implying that even the smallest investment advisory firms should budget for a full-time CCO hire. As the data above confirms, that myth is wholeheartedly debunked. Instead, the vast majority of investment advisory firms will typically have a principal of the firm fulfill the Chief Compliance Officer role requirement as one of their many responsibilities.

However, we do generally advise RIAs that begin to approach the $500 million asset level that it may be time to strongly consider hiring a full-time CCO. Firms that grow to significant size and do not make the investment of hiring an experienced and qualified CCO may jeopardize the long term viability of the firm. Large firms that have not invested in compliance make a very poor first impression with regulators and will struggle to properly demonstrate that a "Culture of Compliance" has been established during a regulatory exam.

Be sure to check back soon as we take a similar look at the average Chief Compliance Officer compensation levels across the RIA industry.

How an RIA Firm Can Create a Culture of Compliance Checklist

 

 

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.

RIA Compliance & Practice Management

Stay up to date on the latest RIA compliance, operations, and technology topics.

Hear from industry experts as they keep you up to date on the latest regulatory developments and practice management topics.

Subscribe to Email Updates

Recent Posts

POSTS BY TOPIC

cta-ria-compliance

cta-ria-operations

cta-ria-technology