Most Popular ArticlesJuly 21, 2009
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As more and more brokers and wealth managers leave large firms to start their own registered investment advisory (RIA) businesses, many have found that it takes more than creative investment ideas and attentive client service to start an advisory firm. Firms need systems and processes that will not only streamline their investment activities, but also generate the reports and filings needed to satisfy regulators and clients.
Custodians have a role to play in providing RIAs with technical and operational guidance. Some even provide technology to handle portfolio management, client relationship management and e-mail retention. When it comes to the crucial area of compliance, however, RIAs are often left to fend for themselves.
Without technology and automation, compliance will consume valuable time and resources. Even when things go relatively well, important regulatory obligations and requirements often fall through the cracks. Getting the right tools in place doesn’t just simplify a firm’s regulatory responsibilities; it also sends a strong message to clients that the firm is trustworthy, operationally sound and up-to-date with its fiduciary responsibilities.
Compliance is a trust issue
High- and ultra-high net worth individuals, as well as institutions, are understandably wary about financial advisors after recent scandals. The bad press that beleaguered the hedge fund industry has spread to RIAs as well. Earlier this year, for instance, scandal erupted around the Houston-based Stanford Financial Group, which has about $50 billion in assets in its wealth management affiliate. On June 19, the firm's chief, R. Allen Stanford, was accused of operating a multibillion-dollar Ponzi scheme with the help of the bank's top lieutenants – and of the Antiguan bank regulator who was supposed to be scrutinizing Mr. Stanford's operations.
In another high-profile case, the SEC charged James Putman, who held executive positions at the National Association of Personal Finance Advisors (NAPFA), and a colleague with taking $1.24 million each in kickbacks related to unregistered investment pools that their firm managed.
A firm that demonstrates to clients that it conducts comprehensive compliance activities sends a message to those clients that it is a trustworthy firm and a safe place to invest assets. Yet because compliance is not an activity that directly generates revenue, even well-meaning RIAs can let their compliance tasks get away from them. Â That is especially true of RIAs who came out of big financial institutions, where compliance was a given. To further complicate matters, chief compliance officers (CCOs) in advisory firms often have other duties, and they may not have the resources they need to stay on top of all of their regulatory responsibilities.Display article as PDF for printing.
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