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US compliance in wealth management: the trends at-a-glance

Chris Hamblin, Editor, London, 12 August 2015

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Cipperman Compliance Services of Pennsylvania has just completed its annual 'C-suite' survey. This shows that half of US asset managers (but less than one-third of US wealth managers) keep compliance entirely in-house.

The survey's respondents were senior managers with compliance responsibilities of various kinds and in various parts of the financial services industry.

Asset-managers

Among the asset managers, half of whom had assets under management (AuM) of more than $5 billion, Cipperman elicited several interesting responses, half of which came from chief compliance officers and a quarter of which came from other compliance personnel, with CEOs and chief finance officers making up nearly all the remainder.

The Securities and Exchange Commission had visited (or 'examined,' in US parlance) 35% of them in the last 12 months; 17% in the last 3 years; 43% more than 3 years ago. Only 4% of respondents were not sure about the timing of their last visit.

What percentage of revenues do US asset managers allocate to compliance? Only 8% spent more than 10%; 16% spent between 5% and 10%; 38% spent 1%–5%; 10% spent less than 1%; and 29% were unsure.

More than half - 52% - had last performed a compliance review in the last 12 months; 10% had done so 12–24 months before; 1% had sone so more than 24 months before; 38% had never done so; and this time absolutely nobody was unsure about how to answer the question.

When asked whether their firms had compliance committees, 52% said yes and added that it met regularly; 10% said yes and added that it met sporadically; 1% said yes and added that it rarely met; and 38% said no, leaving no room for other replies.

To the question "What is your firm’s attitude toward compliance?" 26% said that compliance helped their firms 'sell business'; 27% said that it kept them honest and on their toes; 24% said that it protected their franchises; 22% regarded it as a mere cost of doing business; and 1% thought it a waste of time and money.

Do asset management firms outsource part or all of their compliance functions? Only 3% said 'all,' i.e. that their firms left everything up to other firms, or 'third parties,' as they called them. The rest were divided fairly evenly, with 47% saying that they outsourced some (especially for review and/or specified projects) and 50% keeping it all in-house. The number of compliance employees at these firms ranged from 1-2 (45%) to 3-4 (23%) to 5+ (32%).

When asked how they felt now that the Securities and Exchange Commission (SEC) was naming and prosecuting individuals more frequently, 30% were very concerned; 49% were concerned; and 10% were not concerned. In response to a related question, 87% said that concerns over whistle-blowing had not caused them to change their compliance programmes, while 6% had and 6% were not sure whether they had.

To the question "Do you spend more on your compliance programme than legal counsel?" the answer was 54% yes, 30% no and 16% unsure. To the question "Have prospective clients asked to review your compliance policies and/or interview your compliance resources?" a massive three-quarters said yes and all of the remainder said no.

Wealth managers

Only 8% of respondents described their firms as wealth management firms. Their responses were broadly similar to those of the asset managers, although there were divergences. When asked whether they outsourced part or all of their compliance functions, a massive 69% said some, with 31% saying none and nobody saying all. To the question "Do you spend more on your compliance programme than legal counsel?" the answer was 38% yes, 46% no and 15% unsure.

The percentage of revenues that US wealth managers allocate to compliance are slightly different from those of asset managers. None of the respondents said that their companies spent more than 10%; only 8% spent between 5% and 10%; 38% spent 1%–5%; 23% spent less than 1%; and 31% were unsure.

The questions that referred to outsourcing were born of more than mere curiosity. Cipperman's site proclaims: "We do the heavy lifting, both designing and implementing compliance programmes so you can focus on your clients and growing your business."

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