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
more comfortable dealing directly with us, as an RIA, than as part of our former firm. As an independent RIA we don’t carry the baggage often associated with a wirehouse. As a fee-based RIA, we need to act in the best long-term interests of our clients
to retain them. Many wirehouse brokers operate in a more
adversarial mode with their clients, and compliance is seen as an obstacle, since it is protecting the client who sits on the other side of the table.
In the RIA model, compliance issues serve to remind us that we are on the same side of the table as our client, and that staying compliant will help us forge together a long-lasting relationship.
There are firms that embrace compliance and will work with their investment staff to implement changes from a positive standpoint, and then there are others who view compliance regulations in a negative light. These attitudes start at the top and seem to permeate throughout the entire organization. We choose to take the positive road and view regulatory compliance as not only working to protect our clients, but to protect ourselves as well.
Ralph Parks, president
Steve Paris, chairman
Ralph Parks Investment Group, LLC
Pittsford, New York