3 Common Mistakes Investment Advisory Firms Make When Maintaining Compliance Programs

Regardless of size,  investment advisers need to be aware of some common, and avoidable, mistakes that are often made when maintaining compliance programs.

Some of these mistakes are at a high level, things that senior management should be aware of. Others are issues that need to be trained in your staff at all levels, even down to the most entry-level employees, to prevent small problems from becoming big ones.

What are those mistakes?


1 – Failure to get buy-in from all levels of management.

Just because senior management has signed off on a new compliance program, and may have even spent a significant sum having a consultant help write and update that program, there’s no guarantee the entire organization understands the necessity of such a program.

In smaller firms, this is easier to obtain: with just a handful of advisers, it’s easier to discuss and feel confident that everyone involved understands what the compliance requirements are. As firms grow, or for larger size firms, it’s not always as easy to have confidence that all departments and levels of management understand compliance requirements.

Senior management, almost entirely, can be counted on to understand the need for a complete commitment to compliance. However, it’s the middle managers who often have direct contact with the personnel who have to actually adhere to an updated or revised compliance program.

If the middle managers haven’t bought into the compliance program, or aren’t fully committed to a compliance culture, it doesn’t matter how complete or thorough the compliance program is. It won’t be enforced and it won’t be maintained.

To prevent this, get buy-in and commitment from all levels of management – not just the top brass.

2 – Keeping your teams and technologies in siloes.

You may have worked with the best investment advisory consulting firm out there, and created the most comprehensive compliance program out there. Your policies and procedures manuals might be the best ever created, covering all business practices and applicable regulations and making the SEC examiners weep for joy when they see them.

That won’t help you if each of your departments or workgroups only manages risk and compliance in their specific corner of your firm. In a report on risk management and compliance conducted by the Chartered Institute of Managed Accountants, it was noted that when risk was monitored in individual divisions, overall risk developed unchecked.

Prevent the negative impact of siloed departments on your compliance adherence by directly tying your risk and compliance management to operational performance. Risk management, and compliance, need to be seen as a necessity by all employees at all levels within your firm.

3 – Failure to monitor the annual review process:

That amazing compliance program created 5 years ago when your investment advisory firm first formed may have been amazing then, but laws and regulations change year to year, and your program needs to be updated.

Even if the laws all stayed the exact same, your business operations have likely changed in the last few years – maybe even the last few months.

It’s essential for compliance programs to be kept up to date and as relevant as possible to your business operations. It’s also essential that your compliance program is audited for effectiveness in terms of cost, value in terms of risk management, as well as surprise audits for adherence to the compliance program.

You need to review your compliance program and update it at least on an annual basis, to help keep your firm prepared in the event of an SEC exam – something that is an increasing probability the longer your firm is around, not a mere possibility.

Finally, you can’t see where your program needs to improve if you never review the effectiveness. It’s just plain good business management to have a current and up-to-date compliance program that’s regularly reviewed.

Not only that but a compliance review is required by SEC Rule 206(4)-7 to be conducted at least annually. If you need to review your compliance program every year anyway, why not also monitor the effectiveness of that program?

Need help getting your compliance program back on track?

If you’ve realized your firm is guilty of at least one of these mistakes, it’s not too late to get your compliance program back on track.  By partnering with an experienced compliance consulting firm, you can tick off all the annual audits, revisions, and reviews that your firm may have been neglecting.

The Core Compliance team can help your investment advisory firm get back on track, through customized services that are tailored to your firm’s unique needs.

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