Key Components of a Compliance Program

Feeling like compliance is the sales prevention department? You’ve been thinking about it all wrong then.

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Compliance touches every facet of your business and actually goes hand in hand with operations, so setting up a strong compliance program is as critical to your business success as establishing strong operational controls. Instead of thinking about compliance as something you do after you’ve established your firm, think about it as the infrastructure that sets up the culture, as well as policies and procedures for the firm.

Rule 206(4)-7 of the Advisers Act requires, in brief:

  • Written policies and procedures;

  • Annual review of the compliance program; and

  • Designation of a CCO.

What does that mean for you as an investment adviser? SEC regulators expect to see written policies and procedure to govern your business, that you’re reviewing it on at least an annual basis for adequacy and efficacy, and that there’s a C-level exec in charge of drafting and executing on the program. If you are just checking the box with compliance, you’ll always feel disconnected from its purpose.

When the compliance program becomes the fabric of your organization, you’ll find that the compliance manual (usually the compilation of the written policies and procedures) is one of its most important components and is the written framework that will organically evolve and flex with your business. As you develop your compliance program and establish policies and procedures, here are some key areas that should comprise your manual:

  • Code of Ethics

  • Privacy, Cybersecurity, & Identity Theft Prevention

  • Custody

  • Portfolio Management

  • Trading

  • Proxy Voting

  • Valuation

  • Marketing

  • Regulatory Filings & Disclosures

  • Books & Records

  • Business Continuity Planning

  • Compliance Program

This is not an exhaustive list, but rather represents core compliance topics that are specifically governed by federal securities laws. As you can see, everything from how you market your services to the actual portfolio management of your client accounts is covered within the “compliance” umbrella.

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