Regulatory Trends

Financial Services Industry Embracing Compliance

Regulatory scrutiny, client concerns driving compliance toward core business practice

NEW YORK, Aug. 31, 2015 /PRNewswire/ — A new survey of financial services professionals conducted by Cipperman Compliance Services (CCS) reveals that asset managers, broker-dealers, and other firms are embracing compliance as a core function of their business, with an equal number of respondents reporting that they now spend as much on compliance as they do their legal counsel.

The second annual “C-Suite Survey“, drawn on responses from 180 leaders tasked with compliance in the financial services industry, finds that although a greater number of firms have formed compliance committees and conducted reviews of their compliance programs in the past year, only 18% allocate more than the industry-benchmark 5% of revenues to such activities.

Regulatory Scrutiny Continues

As regulatory scrutiny of the industry continues, client pressures have driven an industry-wide march toward adopting formal compliance procedures.

Eighty-one percent of respondents are “concerned” or “very concerned” by the Securities and Exchange Commission’s practice of naming and prosecuting individuals. Moreover, 70% of respondents also report that prospective clients have asked to review compliance policies or interview compliance personnel, suggesting that compliance is now seen as an integral part of a desirable financial firm.

“Gaining the trust of clients is essential in asset management,” said CCS Managing Principal Todd Cipperman. “A manager’s ability to demonstrate a strong compliance program is a big factor in landing asset management business from institutional and individual investors.”

Accordingly, firms have taken concrete steps to formalize their compliance procedures. Sixty-three percent of asset managers indicate they have a compliance committee at their firm, rising from 48% reporting the same in 2014. Moreover, 88% of all respondents report that they have conducted a compliance review in the last year, as opposed to the 67% who answered as such in 2014.

“Firms are choosing to vest these duties with committees and individuals whose sole responsibility is compliance, as opposed to wearing multiple hats, which has proven to be the most effective means of maintaining a culture of compliance,” said Cipperman. “Truly dedicated compliance personnel reduce conflicts of interest, stay on top of the shifting regulatory landscape, and ensure compliance doesn’t take a backseat to other business functions.”

Resources Don’t Match Commitment

A manager's ability to demonstrate a strong compliance program is a big factor in landing asset management business from institutional and individual investors

Even as firms report dedicating personnel to compliance, they have yet to fully devote the appropriate amount of resources to their programs. Just more than half of respondents, 53%, report spending between 0 and 5% of their total revenues on compliance.

Alarmingly, a significant number of respondents (who are charged with compliance activities at their firms) were unaware of how much they spend altogether. Twenty-nine percent of asset managers, 35% of broker-dealers, 14% of alternative managers, and 31% of wealth managers could not identify what they spend on compliance.

“These figures show, as they did last year, that it is much easier to talk the compliance talk then walk the walk,” noted CCS Managing Director Jason Ewasko. “Firms should spend a minimum of 5% of revenues or two basis points of assets under management on compliance in order to have an effective program. Less than that and they are putting their businesses, and in extreme cases their personal finances, at risk.”

Outsourcing Compliance Function Grows in Appeal

On the heels of recent acknowledgements by the SEC of outsourced compliance activities and court rulings validating the practice, the C-Suite Survey found that the industry has rapidly adopted the practice. Fifty-seven percent of all respondents say they outsource some or all of their compliance function, a rise from the 24% who outsourced in 2014. Leading the trend of firms embracing outsourcing are broker-dealers at 65% and alternative managers at 68%.

Response Breakdown By Type of Firm

Fifty-three percent of respondents described their firm as asset managers, followed by alternative investment managers (15%), broker-dealers (13%), wealth managers (8%), or as falling in an “other” category (11%).





About Cipperman Compliance Services
Cipperman Compliance Services is one of the industry’s leading providers of regulatory compliance services for both registered advisers and funds. The firm offers a variety of services for a full range of clients who, combined, manage more than $40 billion in assets. CCS provides the expertise that ensures a quality overall compliance experience. And, given the visibility of regulatory oversight in today’s environment, our position as an independent partner is extremely valuable to fund sponsors and investment managers.