Ask Brad: How to Fire Your Compliance Department
This is the latest installment of a regular column to answer questions from advisors who are considering transitioning to an RIA model. To see Brad’s previous articles, click here. To submit your question, please email Brad here.
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The overwhelming majority of financial advisors are of the highest caliber. However, any time a profession numbers in the hundreds of thousands, there will be a few bad apples. Industry regulations have been put in place to protect against the nefarious actors.
The compliance teams at the large brokerage firms are tasked with interpreting and implementing those regulations. They are performing a noble and necessary task.
The oft-heard gripe about compliance is rarely directed at the mission they are tasked with performing.
It is with its delivery.
We have all experienced an overly restrictive implementation of a regulation, often due to the firm needing to manage to the lowest common denominator. Put differently, “We don’t know who the bad apples are at the firm (yet), so we have to put tighter guardrails on everyone.”
Worse still is the occasional “gotcha” member of the compliance team. I started my career in a compliance role. I saw this firsthand. Some misguided compliance folks saw it as their personal crusade to “catch” an advisor doing something wrong. The result was punishing an advisor for overlooking a minor policy. Worse, they lobbied to terminate an advisor.
Thankfully, most compliance professionals do not conduct themselves this way. But some do.
When I was in a compliance role, I always told myself, “The advisor signs my paycheck. If I am unresponsive, difficult to work with, or aren’t willing to think through possible solutions, guess what, advisors will eventually leave, and they’ll be taking my paycheck with them.” Unfortunately, this viewpoint is not universally shared.
What can you do about an overly restrictive compliance department? Or a non-responsive compliance department? Or one where you get different answers depending on who you ask?
If you’re at one of the large brokerage firms, not much.
You can complain. You can attempt to raise the issue up the chain of command. But at the end of the day, you’re stuck. You don’t control the department or have a vote over anything they do.
What you can do, though, is leave the firm, which is a drastic step to take to remedy frustrations with an overzealous compliance apparatus.
Consider how compliance is handled in the RIA model.
As your own RIA, you implement a compliance program that demonstrates your adherence to the regulations. Most financial advisors are not living a secret life as an experienced compliance professional (nor do they desire to be), so the standard practice is to hire a specialty compliance consulting firm to help you fulfill your compliance responsibilities.
Notice I said “hire.”
For perhaps the first time in your career, you are now the client of compliance.
You get to:
- Decide who to hire.
- Decide if you’re satisfied with their customer service.
- Decide if they provide you with enough value for the price they charge. (Sidebar: If you’re at a brokerage firm, don’t think you’re not paying for compliance. You are; it’s built into the firm retention part of your payout. You just have no say.)
- Hire these firms to help you stay compliant with the regulations and fulfill the compliance responsibilities of running an RIA. You need to listen to the guidance they give you.
However, to the degree they are not responsive to your needs, lack urgency returning your calls, or are not willing to think through creative solutions, you, for once, have a choice. You can fire them and hire someone that will provide better value.
You are the client. They must keep you satisfied to retain your business.
If you’re at a brokerage firm, try doing this with your compliance department.
Call them up, tell them you’re unsatisfied with their service, and you’d like them replaced.
We all know how that will land.
Many variables are involved in determining whether you should transition your practice to the RIA model. Compliance is just one that should be understood and considered.
If the RIA model is a good fit for you and you make the transition, you will forever view the compliance department in a different light!
Brad Wales is the founder of Transition To RIA, a consulting firm uniquely focused on helping established financial advisors understand everything there is to know about WHY and HOW to transition their practice to the RIA model. Brad utilizes his nearly 20 years of industry experience, including direct RIA related roles in compliance, finance and business development to provide independent advice regarding how advisors can benefit from the advantages of the RIA model.