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How To Get More ROI On Compliance

Think the cost of compliance is too great? Think of it as a cheap insurance policy against being barred from the industry and out of business.

A recent Financial Times article estimated that financial services firms spend up to 10% of their annual revenue on compliance. It further estimated that a “conservative” $780 billion is spent on compliance globally. These expenditures often seem like a “cost center” without any tangible return on investment for the company’s bottom line.

The truth is that costs incurred to maintain regulatory compliance are actually powerful investments. These investments contribute to the stability and long-term viability of a company, especially as it grows and scales to accommodate larger and more complex financial operations. But to get the absolute most out of any investment in compliance, it helps to understand what can be done to leverage the positives that come from being compliant.

Compliance As A Differentiator

There is a host of benefits that comes with being a part of an organization that not only takes compliance seriously, but that also invests heavily into the compliance discipline itself. After all, compliance touches every facet of a firm’s operations. A strong compliance program equates to strong internal operations with the requisite controls and supervisory oversight clients and regulators expect from a financial adviser.

In a post Bernie Madoff world, a compliance program with clear checks and balances can demonstrate how you are safeguarding your clients’ assets which reflects positively on your brand. Moreover, as you target higher net worth and/or institutional clients, operational due diligence reviews become a crucial factor in selecting an investment adviser.

If you’re spending marketing dollars to solicit clients, consider that compliance is just another tool to help you differentiate yourself from the swathe of other advisers but with the added benefit of helping keep you in business. People want to invest in people and firms they trust. Do you trust the state of your compliance program?

Kill Two Birds With One Stone

One way to even further drive home the message of compliance to your clients is to have a third party review your compliance program. Even though you or your team might already have a thorough understanding and comfort with the state of your compliance program, it means more to regulators (not to mention certain types of sophisticated investors) when you can say that an objective third party has audited or reviewed your compliance program. The best part about arranging for a third-party compliance review is that when completed in a mock regulatory exam format, it can actually serve as a quality exercise for your firm and its employees to prepare for the day regulators come knocking.

In addition to putting the firm and its employees through the paces of a regulatory examination, a third party compliance review can be utilized to meet SEC-registered RIAs’ annual compliance program review requirements. Thus, taking the opportunity to integrate a mock audit as a training and development tool for staff while completing their 206(4)-7 review.

Commissioning the help of an outside compliance professional to walk employees through a mock audit goes a long way in preparing them for interviewing with regulators and discovering gaps or differences in the firms’ policies and procedures versus actual day to day practices. When compliance stops being treated as a “cost center”, but instead as a tool for empowering your employees and boosting the company image, the return on your compliance investment grows exponentially.