Stop getting caught in the hiring myths and start looking for the right things in a good compliance consultant.
Like any other industry, compliance consulting contains a wide range in the quality of service and its can be hard to weed out the good from the bad. Let’s dispel some fallacies about good compliance consulting so you can make the most informed decision.
MYTH #1 - AN IVY-LEAGUE EDUCATION IS A CLEAR INDICATION OF SKILL OR TALENT
Financial regulations are more reactive than proactive. Most well-known securities laws have been implemented in the wake of a financial disaster (e.g. the Great Depression and Glass-Steagall; Enron/Tyco/WorldCom scandal and Sarbanes-Oxley; and most recently the Global Financial Crisis and Dodd-Frank). So, it’s no surprise that in the early days of adoption, compliance with those rules follows suit.
With both regulators and regulated sailing in uncharted waters, implementation rarely fits the neat confines of an academic curriculum. As the financial compliance industry matures, so too does the framework for educating its newcomers. In the early days, there was no compliance degree; no training or coursework. There was only trial by fire – as regulators reacted to changes in practices, practitioners on the front lines could only evolve with the changing regulatory environment brought about by their industry’s own advances and complexities. The lessons learned were through cooperative dialogue with and regular feedback from the relevant regulatory agencies.
Many junior compliance personnel are administrative staff saddled with supposed “check the box” formalities or dual hatted COOs and CFOs forced to tack on compliance duties to their laundry list of responsibilities. The result is the gradual development of full-fledged compliance experts over time and as they experience feedback from examinations and perfect their knowledge through several iterations. That development takes time though, therefore, if you’re screening consultants by their formal schooling then you’re probably discounting some of the most knowledgeable and skillful professionals in the industry. In the world of compliance, experience is one of the leading indicators of talent.
MYTH #2 - COMPLIANCE CONSULTANTS MUST HAVE WORKED AT A BRAND-NAME INSTITUTION
This is probably the most common misconception about what makes for a high-value compliance consultant. In many occupations, coming from a large, branded institution can imply a level of expertise and talent that coming from a smaller firm cannot compare to. Big names in the investment banking space, consulting companies, or Big 4 accounting firms actually have very little correlation in compliance though.
Compliance officers at financial giants (think Goldman Sachs) gain invaluable experience, but that doesn’t always translate to the needs of a more nimble business. Their corporate structures necessitate large departments with often highly specialized and siloed division of labor. This provides their employees deep knowledge of a small range of compliance concerns but can create blind spots about how those concerns fit into the bigger picture. For example, a consultant with 15 years of experience reviewing marketing disclosures for Goldman Sachs can be a rich mine of knowledge for an entrepreneurial advisor looking to reach prospects with innovative content. However, that same consultant would be no help at all to a growing RIA trying to get registered with the SEC. Therefore, you can be impressed by the big names and have comfort in the individual’s expertise even, but that expertise isn’t always in the area you may need.
MYTH #3 - COMPLIANCE CONSULTANTS MUST BE FORMER REGULATORS
Let’s be clear: a former regulator is an invaluable resource. The experience they’ve gained from the “other side of the table” performing audits on RIAs provides invaluable insight into how regulators think and what to expect in your own exam one day. But (and this is a big “but”) not having that experience doesn’t mean the consultant is less knowledgeable about the areas of compliance with the largest impact on your business nor are they ill equipped to speak about regulatory expectations. After all, consultants who are not former regulators have likely reviewed and/or assisted more firms than most former regulators with the same years of experience.
Why? Consider the workload of the average SEC examiner tasked with carrying out these exams. An examiner will spend several months reviewing a single adviser, resulting in a review of only 2-3 firms a year. Compare this experience with that of a boutique compliance professional who is likely performing dozens of mock audits and reviews for companies of all sizes in a given year. These compliance experts have “touched” more and they’ve potentially dealt with everything from exams to registrations to policy writing. For many financial firms, the experience of a regulator like the one described above isn’t as ideal as the experience of the smaller-scale-but-higher-volume compliance expert when it comes to executing on day to day tasks.
Lastly, a former regulator’s value as a consultant is largely proportionate to how recently he or she has worked in that government role. The longer its been since they were in that government position, the less relevant their insider knowledge becomes as they are no longer privy to the evolving internal policies and have fewer contacts within the regulatory agency as their peers leave as well. Sometimes, it’s just as effective to hire a consultant who has strong relationships with current regulators through experience aiding their multitude of clients through regulatory exams. It is also cheaper as former regulators can carry a pricing premium.