Today, almost all SEC registered investment advisers are utilizing compliance consulting firms (“consultant”) for outsourced compliance assistance. To the extent that these services are beneficial is dependent on several factors. Ultimately, there should be a recognition of the value received from the cost of services obtained. Here we explain the diverse ways you determine that value and what components of a consulting engagement provide the best means of achieving the value sought.
Compliance departments are typically under-resourced and lack an adequate number of internal staff to handle all the compliance necessary to meet SEC requirements. Many firms only have a Chief Compliance Officer (CCO) who is responsible for their firm’s compliance, and that person’s time may be divided by carrying another title, such as CFO, COO or General Counsel. The consultant arrangement should add outside human support and expertise plus build in efficiencies to the firm’s current compliance structure. Types of outsourced services should be tailored to this structure and the internal resources available to work with the consultant. The goal is to better ensure the completion of compliance tasks, and, in turn, save time as well as costs by reducing the need to hire more internal staff. Perhaps, most importantly, the consultant should ensure its client is adequately prepared for an SEC exam. Since the timing of when an exam would occur is often an unknown, the preparation should be continuous.
Besides helping to handle a firm’s compliance requirements and regulatory deadlines, a consultant should be an advisor and educator for the CCO and their staff. We have often heard new CCOs rationalize their comprehension of compliance by stating, “you don’t know what you don’t know.” Those in the compliance profession often come from other business areas. Further, there is no required degree or formal training, qualifying exam or license for an individual to be appointed a CCO of an SEC registered adviser. This lends itself to compliance self-training, sometimes under fire or during and following an SEC exam. In contrast, through regular dialogue, the consultant should be advising the CCO and staff on important regulatory updates, helping support decisions on policy creation and how to implement change, as well as providing guidance during SEC exams. A consultant can also assist the CCO in understanding how to do their job effectively and how compliance can effectively influence senior management decisions regarding operations. Communication between the consultant, CCO and their staff should be a regular occurrence via secure messaging, phone calls and video meetings.
The value of the consultant arrangement becomes apparent through certain key components of what the consultant offers. These drivers are critical to the success of the client-consultant relationship and allow the CCO and compliance staff to seize the greatest value from the consultant services. Since 2006, FrontLine Compliance has worked to build value through its offerings, culminating in services that are tried and tested that produce recognizable value for its clients.
Consulting Value-Add Components
- Proper consulting on SEC regulations requires several years of relevant experience. Your assigned consultant team should be comprised of compliance professionals with at least 10 years of SEC compliance experience as SEC examiners, CCOs and in senior compliance roles.
- FrontLine Compliance’s consultants all have a minimum of 15 years of senior compliance experience and are former SEC examiners and CCOs.
- Your consultant’s staff and the individuals working with you need to have exceptional SEC regulatory knowledge. They should be well-versed in the Investment Advisers Act of 1940 and the Investment Company Act of 1940.
- Our consultants must pass a FrontLine administered exam on SEC rules knowledge to be considered for a consultant role.
- The consultant’s review methods should be comprised of SEC level forensic testing and audit techniques. Cursory reviews relying on checklists are not sufficient.
- FrontLine’s forensic testing program keeps its clients continuously prepared for SEC exams while providing ongoing guidance on SEC requirements.
- Your consultant should be able to explain how it has delivered compliance successes for its clients, reduced costs and achieved client satisfaction.
- Since its founding in 2006, FrontLine has a historical track record of short exams with no material findings for its clients, a 70% client cost reduction compared to internal compliance hires, up to 50% in reduced client legal fees and a 95% client retention rate.
- The consultant should proactively engage the CCO and internal compliance staff and should be readily available to answer questions and provide support, as needed.
- FrontLine conducts regularly scheduled video meetings with its clients for project updates, regulatory advising and Q&A. We offer ongoing access to our top executives with a 24-hour response time.
- A consultant should have a supervision structure that ensures projects are completed on time and on budget. Individuals providing the work should have oversight and their work product should be reviewed by a manager or executive-level person at the consultant.
- Work-flow for all FrontLine client projects is monitored and supervised via a secure project management system and written deliverables are not submitted to clients until approved by FrontLine’s senior management.
The best compliance consultants are also seasoned business consultants. They offer effective ways to manage compliance requirements, and ensure firms meet regulatory challenges while preventing disruptions from SEC inquiries and exams. This type of value, when achieved, benefits the entire firm and helps secure its future.
