IAA Study Shows More Compliance Burden on Small Compliance Staff
The Investment Adviser Association released its 2011 Compliance Benchmarking Survey, which indicates the increasing compliance burden borne by registered investment advisers. The Survey of over 400 firms indicates that nearly a quarter of firms do not have a full time legal/compliance role and that 66% of CCOs (92.5% at firms with less than $1 Billion AUM) perform multiple functions. Yet, firms have increased the amount of testing in areas such as advertising/marketing, data security, custody, personal trading, regulatory reporting, and insider trading and have added other topics to the compliance agenda including pay-to-play, risk management, and social networking. Some other notable findings include: (a) 70% of firms detected compliance issues and the number of issues reported increased with the number of compliance personnel, (b) 53% of firms require pre-clearance of political contributions, (c) the CCO prepares the ADV Part 2 at 90% of firms, (d) 63% of firms have a whistleblower policy (e) 60% of firms conduct employee background checks and review e-mails, and (f) 64% of firms have adopted social networking policies and procedures..
OUR TAKE: Firms are clearly burdened with increasing compliance responsibilities, while CCOs often operate as one-person departments responsible for multiple functions. We believe that overall compliance spending as a percentage of firm operating budgets will increase over time. While we have not conducted a formal study, we believe that firms that spend less than 5% of operating revenues or 1 basis point of AUM on compliance are assuming significant regulatory risk.