Practical analysis for investment professionals
09 January 2017

Be Your Own Chief Compliance Officer

Be Your Own Chief Compliance Officer

Finance has evolved from a trade to a profession over the past century. While money management has existed in some form, however rudimentary, for thousands of years, it has had to continuously adapt in order to keep up.

Global geopolitical developments have shaped the contours of these increasingly complex changes. So too have monetary and fiscal policies, with their accompanying cascades of legislation.

Many specialty certifications have been created to address the stratification of finance and planning at the corporate and individual levels. Compliance has not been exempt from this trend.

Finance professionals are now entrusted with a higher standard of care, and staying up to date with the myriad compliance rules and best practices can be a tall order. Here are some suggestions to help you succeed in those efforts. Consider these steps part of a work that is always in progress.

  • Avoid Obfuscation: Did you get that? Probably not. Your clients didn’t either. Keep things simple and straightforward. Clear, direct language is always the best approach.
  • Good Compliance Is Good Business: Best practices and an ethical foundation are critical to success. Don’t separate the two: They need to work in unison.
  • Know Your Stuff: You can’t know everything, but you should strive to be a foot wide and a mile deep in your specialization.
  • Take Advantage of Available Resources: When you encounter unfamiliar territory, consult an appropriate specialist. A municipal bond analyst is no more suited to address the valuation issues of small-cap value stocks than a real estate lawyer is to draft estate planning documents. Know your limitations.
  • Trust, But Verify: This Ronald Reagan-era geopolitical dictum also applies to finance. A healthy dose of skepticism is essential when evaluating managers and companies. Do your own research.
  • Know Where to Find Your Firm’s Internal Compliance Information: You should not be expected to absorb all this data. You can’t learn a foreign language just by reading the dictionary, but your firm’s compliance team should be accessible for questions and to point you to all the relevant resources. The team should also have a robust knowledge and understanding of applicable local laws. This likewise applies to any professional association to which you belong. For example, CFA Institute has its longstanding Code of Ethics and Standards of Professional Conduct, with separate guides for asset managers and trustees.
  • Training Is Essential: No one wants an uncertain investment adviser. Take full advantage of internal training programs. Meet all continuing education (CE) requirements in a timely fashion. Aspire to be a polymath. Lifelong learning is critical in any profession, and finance is no exception.
  • Practice the Three Rules of Compliance: Document, document, document. It’s not just good compliance, it is essential to managing your client effectively. How could a physician be expected to treat a patient’s chronic condition without knowing their medical history? The same rule applies here — document everything.
  • Remember Every Service Has a Primary and Secondary Function: If you try to fit a square peg into a round hole, you will get it wrong. If a client purchases a variable life insurance policy, their primary objective is protection. The investment feature is always secondary.
  • Be Curious: Going to the office every day is not enough. Always be inquisitive. Did something you read seem odd? Find out more. It may be nothing, but by taking a closer look, you are doing your due diligence on behalf of your client. The body of investment knowledge and the compliance rule book continue to grow. Never hesitate to ask questions about something that’s unfamiliar. You’ll be performing a greater service to your client, and burnishing your own reputation and that of your profession.
  • Listen: To your colleagues and your clients. As a skill, listening is often overlooked, but you’ll be surprised what you can learn by keeping an open ear and an open mind.
  • Recognize That Progress in Finance Is Cyclical: Consider how momentous the passage of the Employee Retirement Income Security Act (ERISA) was in 1974 and the subsequent role of retirement plans. The 2017 Department of Labor (DOL) Fiduciary Rule is expected to upend the profession yet again. It’s crucial to understand the implications of new regulations and to prepare for them.
  • Be Transparent: Be clear about who you are and what you do. Your clients should know what they pay for and why. Fees are often unclear and can sow confusion and distrust. Social media is also fraught with risk. Be mindful of what your company allows and play by the rules. If your compliance department can’t see it, it can’t supervise it. Don’t let them find out the hard way. As the Bernard Madoff debacle revealed, liars and cheats do often get caught, but only after the damage has been done and at an irreparable cost to their reputations and those of their associates.

No one can do it all. Nor should you be expected to. As the pace of events and knowledge continues to increase at such a dizzying rate, know where to get help and maintain your sense of humility.

Just because you can’t do it all doesn’t mean that you can’t still do the right thing.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: erhui1979

About the Author(s)
Marc L. Ross, CFA

Marc Ross, CFA, is an experienced investment professional with a varied skill set that encompasses third party manager research and due diligence, securities compliance, investment advisory, and ERISA qualified plan design, sales, and implementation. In addition to the CFA charter, Ross holds the CFP® and CLU designations.

1 thought on “Be Your Own Chief Compliance Officer”

  1. Clement Gavi says:

    ‘Be Your Own Chief Compliance Officer’
    ‘Trust, But Verify’

    Compliance in suggesting an existing that must determine, something to look at, to take into account in performing an act, etc, the idea of trust and verification refer likewise to compliance itself. For instance the underlying of verification or the ‘truth’ against which what is given is verified, is still the contents of compliance.

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