The Investment Adviser Association, together with ACA Compliance, released its annual Investment Management Compliance Testing Survey, which offers an industry snapshot of compliance practices.  Nearly two-thirds of CCOs have multiple roles within the firm, even though over 90% of firms claim to have a full-time person devoted to compliance.  Less than one-third of firms even have a compliance budget, and approximately 50% said they spend less than 5% of revenue on compliance issues.  The report offers some examples of how to conduct testing in areas such as fees, referral/solicitation arrangement, directed brokerage, and soft dollars.  The survey also shows increased focus on social media, valuation, and advertising/marketing.

OUR TAKE: The survey data has a significant anomaly: 90% of firms cannot have a full-time person devoted to compliance while two-thirds of firms have CCOs with multiple roles.  We believe many firms are in denial about their compliance obligations if 2/3 of firms don’t have at least one person focused exclusively on compliance, refuse to establish a budget, and spend less than 5% of revenue on compliance.