Financial advisor compliance is one of those areas that most advisors dread doing, but know is absolutely critical to their business. The potential risk of not handling compliance properly is a very real threat to any growing independent advisor, but a continually changing regulatory environment can make it difficult to keep up. Does the thought  of a potential SEC audit keep you up at night?


On July 30, 2007, the Financial Industry Regulatory Authority (FINRA) announced that it had commenced operations as the largest non-governmental regulatory organization for securities brokers and dealers doing business in the United States. FINRA was created through the consolidation of NASD and the member regulation, enforcement and arbitration operations of the New York Stock Exchange. It is responsible for rule writing, firm examination, enforcement, arbitration and mediation functions. FINRA is dedicated to investor protection and market integrity through effective and efficient regulation and complementary compliance and technology-based services.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank) was signed into federal law by President Obama on July 21, 2010. It was passed as a response to the Great Recession of 2008, and brought the most significant changes to financial regulation in the United States since the regulatory reform that followed the Great Depression in the 1930s. The Dodd-Frank consists of a staggering 13,789 pages and more than 15 million words!

These regulations, along with the many others, surround a constantly evolving stock market. How do you keep up with all of the changes to existing laws, and the introduction of new regulations or authorities?  Should you have a Compliance Department?  How many people should be in your compliance department, if you do have one?


The Chief Compliance Officer (CCO) is responsible for the compliance of financial transactions and operations within the company. They are also responsible for ensuring that operations within the company adhere to all applicable rules, regulations, polices and laws. The CCO develops and revises all company policies and standards to outline ethical, safe, and efficient procedures. He or she reviews and revises the company’s codes of personal conduct. The CCO must constantly work to find and resolve areas of compliance risk. Financial advisor compliance is like a never-ending high-stakes game of whack-a-mole.

So, should you have a Compliance Department? Can you afford to support that department if you are running your own Independent RIA? The real question should be, how can you not have a Compliance Department?  With all of the changes that occur in the markets ever year, you owe it to your clients to make sure you know, and understand, the impacts of any changes.

One of the key lessons of being an entrepreneur is realizing that you don’t have to do everything. And you certainly don’t have to do it alone. There are solutions available to you that don’t require you to staff a Compliance Department. Hire, outsource, or partner to gain the resources, tools and support to optimize your advisory firm’s potential.


Did you know that the salary for a Chief Compliance Officer (CCO) can range from $90,500 to $181,250 per year? In addition, the average cost to run an internal compliance program can be at least another $40,000 on top of the CCO salary. And even then, you still must cover the risk of your program being found deficient in an examination. Are you able to sustain this level of investment year-after-year and do what is required to stay compliant? Many independent advisors can’t or don’t want to put themselves on the hook for this level of investment, so they look to other options.


Outsourcing could be a viable 0ption for handling your firm’s compliance. However, if you are going to outsource, there are some things to be aware of. The SEC Office of Compliance Inspections and Examinations (OCIE) recently issued a risk alert report discussing examination findings for advisors and funds that outsource their Chief Compliance Officer role to third parties. In the report, the SEC cautioned that firms that outsourced their CCO function to a third party sometimes didn’t have an understanding of their own potential compliance shortcomings. The agency also said certain outsourced CCOs “could not articulate the business or compliance risks of the registrant or, to the extent the risks were identified, whether the registrant had adopted written policies and procedures to mitigate or address the risks.” The SEC also criticized outsourced CCOs’ use of “standardized checklists” to obtain information from advisory firms, and advisory firms’ use of outsourced compliance templates that were not tailored specifically to the firm.

(Source: SEC OCIE Risk Alert, Volume V Issue 1, November 9, 2015)


You can partner with an RIA that has a full-time Compliance team available to support your everyday needs, and who will dedicate the time necessary to focus on Compliance (and the ever-changing rules and regulations of the markets). Good compliance requires lots of interpersonal communication and interaction; it can’t be done through templates and standardized forms. A partnership with the right firm provides both the relationship and the level of compliance knowledge and understanding that is required.



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