A primer to understanding the pricing variance in the compliance consulting space and how to determine a fair price for your next outsourced project.
Even though costs can vary widely, compliance consulting services do have a "true cost" that you can use to guide your decision-making process: it's the opportunity cost for the consultant to be working for someone else.
If you don’t actually work in the compliance industry, you probably don’t have a realistic idea what compliance consulting is worth in today’s marketplace. This can make it difficult to know what to expect to pay for a compliance consultant for your own firm. It’s important to know what makes for a high-quality provider of compliance consulting when fees for their services can cost up to $1,000 an hour. Now, more than ever, RIAs and other financial services firms need to know what compliance consulting services are worth when cost containment is so crucial to maintaining a healthy bottom line. So, how much should you pay for a compliance consultant? Explore the answer below, and learn how Complect is helping democratize access to this talent pool by connecting experienced compliance specialists with those who need them.
Always Keep the Opportunity Cost in Mind
Compliance professionals can vary from your junior level lackey, who helps with the check the box tasks without needing to interpret or understand the regulations that shape these activities to the ones you call on for their specific expertise in shaping and executing an effective compliance program. The average salary for a junior-level compliance officer is $40,000, meanwhile the average salary for a seasoned, senior compliance professional can be anywhere from $100,000-$250,000+.
Depending on the pedigree of the compliance professional you’re looking to hire and the complexity of the project in question, you will then need to pay them an hourly rate that is not only equitable to what they can earn currently but above the rate they could earn working for another employer. After all, by working for a firm as a full time employee, they also have the ancillary benefits of retirement and healthcare plans in addition to the security of a steady income. When you evaluate on the basis of that opportunity cost, you're probably looking at a competitive hourly rate of $35/hr for junior level assistance to $150+/hr for the seasoned professionals.
Why Consulting Firms Are So Pricey
Labor is always the most costly operational expenses for any business. Given what you now know about salaries being offered to compliance professionals in the space, imagine what that means for the consulting firms hiring them. A study by MIT estimated that the true cost of an employee (after salary, employment taxes, and benefits) is anywhere from 1.25 to 1.4 times the salary. Wowsa!
Therefore, when you're seeing heady price tags creeping towards the $1000 an hour range for billable rates, you can now understand that a good portion of that is going directly to paying for those labor costs. For the large marquee firms though, another large component you're paying for is branding, the cost to run their large operations, and profit margin for the partners. Like it or not, what you're really paying for with a high-end compliance consulting firm is their brand name and years of experience as value-added service providers. So, while you may know that you need expert-level compliance consulting, you may not necessarily want to pay the extra $300+/hour for the brand, reputation, and/or "legacy of excellence" they tout.
Fairly Pricing Compliance Consulting
With the variance in true labor cost (referring to compliance professionals salaries being converted to hourly rates) being somewhere between $35 an hour and $150+/hr you suddenly have a much more reasonable pricing window to play with than the hourly rates you may have flung at you by consulting shops.
So, to fairly price compliance consulting services:
Determine the level of expertise you want. Is your project for a junior level box checker or do you need someone experienced enough to help craft policy and provide advice on how things need to be done? If you're looking for actual advice and guidance, you want to start at a minimum of $100/hr and start working your way upwards the more senior the individual, the complexity of your organization and their required skill set, the pedigree of any firms they've worked for in the past, and if they're a former regulator. Former regulators command a premium in the marketplace for their "insider" knowledge on what the regulatory bodies expect to see and how they operate internally.
Decide whether you need a brand name behind the service to take to your boss, Board of Directors, and/or investors. Be prepared to pay for the padding that firm level branding costs.
Estimate how many hours your specific project will take to complete. By pricing using the same methodology of a compliance consulting firm (Hourly Rate x Number of Hours = Project Cost Estimate) you now have an idea of what the project should cost.
Stumped about how much time a project should take? Think about how in depth you want the consultant to go. Remember, the more time they spend with you, the better they can understand your business and the more forensic testing they can do on your compliance program if it's a review of your practices.
At Complect, we feel that striking the right balance when finding the ideal compliance consultant for you doesn’t have to involve a lot of guesswork or exorbitant fees, it's all about access to this niche talent pool. That's why we seek to aggregate the expertise you need onto our marketplace platform. We don't want to compete with the consulting resources out there, we want to make it easier for both parties to find and work with each other!