As a registered investment adviser (RIA), you understand the importance of compliance. But keeping up with the latest Securities and Exchange Commission (SEC) requirements can be incredibly difficult when you’re also juggling client meetings, portfolio management and everything else that comes with the life of an adviser.
Without a dedicated person to keep team members accountable, how can your advisers know for sure they’re following the latest rules and regulations?
A chief compliance officer (CCO) plays a vital role in establishing and executing a compliance program within your RIA firm, proactively working with advisers to avoid violations and penalties. Here are 10 common questions regarding CCOs and the role they play within RIAs.
What is a CCO?
It is the responsibility of the CCO to ensure their RIA firm is complying with all rules and regulations as established by the SEC. The CCO helps foster an environment and culture of integrity, compliance and honesty.
Essentially, it’s their job to help the rest of the firm take compliance concerns seriously. The CCO helps advisers and senior leaders take a proactive stance in avoiding compliance issues and preventing violations which could harm investors.
Does every RIA need a CCO?
Yes, every RIA firm must have a chief compliance officer. Neglecting to appoint someone on your team as CCO is a direct SEC violation. It can also open your firm up to costly risks and conflicts of interest.
Why do RIAs need a chief compliance officer?
Rule 206(4)-7 of the Investment Advisers Act of 1940 states all RIA firms must appoint a CCO to oversee the internal compliance program. With the financial landscape evolving quickly, new risks emerge every year. To address these ongoing challenges, the SEC releases new rulings and regulatory requirements frequently. CCOs play a critical role in following regulatory changes as they happen, ensuring their firm remains compliant under new rulings.
What is a CCO’s responsibilities within an RIA firm?
A chief compliance officer holds many responsibilities within the realm of maintaining compliance with the SEC.
Some common responsibilities of CCOs include:
- Managing SEC audits.
- Having a solid understanding of the Investment Advisers Act of 1940.
- Implementing policies or procedures which help the firm avoid compliance violations.
- Developing or regularly updating the firm’s Code of Ethics.
- Offering ongoing education and training for all team members, especially as new rulings are established.
- Serving as the firm’s internal reference for any compliance-related questions or issues, as well as a contact person for external compliance questions.
- Documenting all processes and procedures related to compliance.
Can I outsource my CCO to a third-party?
No, you cannot use a third-party as your firm’s CCO. The CCO role is critical and must be fulfilled by a qualified individual within the RIA firm. However, there are third-party companies, like RIA in a Box, who assist CCOs by providing them with the resources, technology and efficiencies to better execute their responsibilities.
Who can serve as my RIA CCO?
Anyone who works at your firm can legally be appointed CCO. It’s common for smaller RIAs to have the CEO, COO or other senior leader serve as CCO for a few reasons.
These high-level leaders have a robust working knowledge of the industry, as well as a good understanding of the company culture. In addition, they already have a commanding and authoritative presence within the company, which plays an important role in getting employees to take compliance issues seriously.
To whom does the CCO report?
Legally speaking, there are no requirements regarding who the CCO reports to within an RIA firm. However, firm politics may play in role in how your CCO is viewed by others. Wherever they fall at an organizational level, the CCO needs to be a person who can hold senior leaders and executives accountable. They must be viewed by others as having authority and seniority within the company.
Does a RIA’s chief compliance officer have to go through any official training or schooling?
There is no specific experience, training or schooling needed to become a CCO. However, the SEC does require an acting CCO to be “competent and knowledgeable regarding the Investment Advisers Act of 1940.” Additionally, it is important for a CCO to commit to ongoing education and training on compliance requirements. As new rulings are announced, CCOs serve as a firm’s frontline of defense. They need to have a solid and clear understanding of how the new ruling impacts the firm, what changes need to be made and by what date.
Can my CCO leverage compliance consultants to help make sure the job is done right?
A compliance consultant can be extremely beneficial even if you firm is fortunate enough to have a tenured CCO. Consultants often bring with them decades of experince, having served as regulators, compliance professionals and CCOs themselves. This kind of knowledge is often unmatched and can be extremely beneficial for firms looking to address any gaps in their compliance program.
What is the average CCO salary?
The average salary range of CCOs varies between $139,938 and $236,201, according to Comparably and Salary.com, respectively.
It’s likely CCO salaries have a wide range because most firms don’t hire a full-time compliance officer. Instead, an internal senior leader typically takes on the position in addition to their other responsibilities and duties.
As with most jobs, firms located in larger metropolitan areas should expect to pay more for a CCO than those operating in smaller cities. If you’re considering hiring a dedicated CCO, research median salaries in your specific region and consider additional factors like experience, duties and specific skillset.
Need help establishing a CCO for your firm?
The chief compliance officer is a demanding position, but it’s also becoming an increasingly important part of RIA firms. If you’re in the process of transitioning these duties to a current team member or hiring full-time, partnering with a reliable RIA compliance consultant is critical. To help your firm stay proactive and compliant all year round, speak to a team member today.