The increased burden of compliance is troubling many RIAs these days, but there’s another side to the story. While we didn’t realize it at the time, compliance and regulatory issues played a major role in our decision to leave a large wirehouse to open an independent RIA firm just last November.
RIAs have to adhere to the suitability (of investments) verification rule and we now need to demonstrate best-price execution on all of our trades. The new “know your customer” rule requires us to be well informed about each of our clients; and we need to know much more detailed information which differs from the old tradition of simply knowing their names and addresses. Additionally, more stringent licensing requirements have recently been imposed by many states. These newly enforced rules and regulations came about largely as a result of the abuses and malfeasance that many large wirehouses have been charged with. In our case, this constant barrage of bad news was affecting our ability to attract new clients. Since going independent, our referral network is working again. That’s the case not because of anything we may be doing differently, but because we have chosen to distance ourselves from the big wirehouse image.
Now that we are on our own, we are much more cognizant of the need to be in full SEC compliance in everything we do.
We have hired a chief compliance officer who oversees every action and decision we make as the target launch date for our first mutual fund draws near. Working with her has afforded
us a new awareness of what we need to do to stay within the
regulations. Before becoming an independent RIA, it often
took several phone calls to clarify a compliance question or
adequately address a basic issue.
While we have not spoken about compliance issues with our clients directly, we have been told by many that they are