ReceNt NASD actions have led to increased compliance efforts on the part of many firms. The Financial Services Institute has released “Independent Broker-Dealers: Building a Culture of Compliance,” the second in a series of white papers dealing with the supervisory and compliance capabilities of independent broker/dealers (IBD). The paper points to a 2004 SEC Staff Legal Bulletin that raised concerns about IBD firms’ supervision of financial advisors in remote locations, among other things, recommending supervisory “best practices.”
The Bulletin and other enforcement actions have had a major impact on the compliance efforts of IBD firms, motivating them to review their own supervisory systems to identify and fill any remaining gaps. IBD firms also reviewed the best practices recommendations and adapted them to their own circumstances. As indicated by research conducted by FSI and Cerulli, IBDs spend an average of 10% of their gross revenue on compliance. Account surveillance using sophisticated technology (22.2%) and office audits (22%) represent more than 40% of the total compliance expenses. Development of compliance policies was 11.4%. The paper states that these statistics demonstrate that IBD firms are dedicating the resources necessary to improve the effectiveness of their compliance efforts.