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Regulation and Compliance > Federal Regulation > SEC

Getting Compliance Help Now

By Melanie Waddell

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It’s been a little over two years since the Securities and Exchange Commission issued its infamous rule–known as the compliance rule–requiring advisors to have a written compliance manual and to designate a chief compliance officer for their firms. Since then, advisors of all sizes and types have been bombarded with warnings by lawyers and compliance gurus that they’d better get the lead out and get serious about the SEC mandate. A good many advisors have heeded those warnings; others have not–particularly smaller firms.

If you’re one of those firms that’s still dithering on the sidelines hoping that your compliance program is up to snuff, it’s time to get serious. A good place to turn for help is the Regulatory Compliance Association’s (RCA) new CCO University, which launched last October. The program includes a 30-course Master of Adviser Compliance Degree curriculum that offers courses on such topics as principles of compliance, soft dollars, SEC examination preparation, hedge fund compliance issues (see sidebar on SEC upping the accredited investor minimum on page 98), advertising and marketing, code of ethics, best execution, and so on. You can view the entire course list by logging on to www.rcaonline.org and clicking the CCO University link. The courses are taught by compliance officials, CPAs, and lawyers at prominent law firms, as well as SEC officials.

Walter Zebrowski, chairman of RCA and a principal at TurboCompliance, which builds governance risk and compliance platforms, says that by issuing its formal set of compliance requirements, “the SEC essentially escalated advisor compliance to the level of broker compliance, and there is now a gaping hole of what the SEC expected and what the [investment advisory] industry was taught.”

Zebrowski says that’s precisely why officials, including himself, working for RCA’s corporate sponsors–which includes firms like Ernst & Young, McGladrey & Pullen, Dechert LLP, and TurboCompliance–recognized the need to develop a formal program that would teach advisors how to be a chief compliance officer. “The NASD has a [compliance] program for broker/dealers, but that’s for B/Ds, not for advisors,” he says.

From the Four Corners

Zebrowski says students of all types have been signing up for the online courses–CPAs, lawyers, operations and compliance officials, technology personnel, advisors, and people from abroad. The Financial Services Administration (FSA)–the SEC of the United Kingdom–is also offering a compliance series similar to the CCO University, Zebrowski says. While most of the courses deal with advisor compliance, some courses also pertain to Sarbanes-Oxley compliance, he notes, adding that even regulators are signing up for some courses. However, RCA doesn’t charge regulators a fee, he notes. RCA members can pick and choose among courses, which cost $150 each, or they can take the entire Masters Program and pay between $2,250 and $2,500. An RCA membership is $250 per year.

RCA elected not to provide a credential for those completing the Masters Degree, Zebrowski says, because there are just too many credentials out there. “We wanted to develop an educational program from an intellectually honest perspective that would provide somebody with the foundation to be able to develop a compliance program,” he says.

According to the CCO University’s Web site, each course includes: a textbook, generally 15 pages, exclusive of footnotes, endnotes, exhibits, or forms; a course outline, generally in a PowerPoint format; a lecture, delivered in an “on demand” Webcast format, generally two to four hours; and a final exam, generally 25 questions in multiple-choice format.

Zebrowski says he’s gotten “great” feedback so far about the CCO University. “Where else are you going to learn how to prepare for an SEC examination?” he asks. In fact, taking the courses and securing the Master’s Degree is the best way–particularly for small advisory firms–to “demonstrate to the SEC that you do have the knowledge and competence to discharge the duties of being a CCO,” Zebrowski says.

Having the education and training necessary to comply with the SEC’s rule is perhaps most crucial for small advisors, because SEC officials have stated that they will be zeroing in on small firms’ compliance programs. Unfortunately, a lot of these firms aren’t taking the SEC’s warnings to heart. “One thing I hear from smaller advisors is, ‘Why do I need compliance education?’” Zebrowski says. “The irony is that the SEC has said they will pay particular attention to these small firms because the SEC realizes that smaller firms don’t pay as much attention to compliance.”

Education for Non-Lawyers

Tim Clark, a partner at Dechert LLP in New York, who teaches the CCO University’s soft dollars course, agrees that the CCO University “really fills a need” for advisors of all sizes. “The non-lawyers of the world are now charged with keeping up with a huge amount of information and changing rules,” he says. Students in his course include small advisors as well as compliance officers at big banks. The smaller advisors are always at a disadvantage because they lack the resources available at the big banks to help keep them up to date, he notes. “For smaller folks, the risks are just as great during examinations as at the big banks.”

As for soft dollars, Clark points out that SEC exams are focusing more and more on soft dollars. He updated his course’s curriculum after the SEC came out with its long-awaited interpretive guidance on soft dollars last July. Advisors and broker/dealers must comply with the new guidance by January 24. Plus, the SEC is expected to propose a rule in 2007 that will mandate new requirements on disclosures and recordkeeping duties relating to soft dollars. Soft dollars “is definitely a moving target, and the SEC is going to continue to come out with new rules,” Clark says.

The Investment Advisers Association recently listed areas that the SEC’s Office of Compliance, Inspection, and Examination will scrutinize during exams in 2007. They include: making investment decisions on the basis of non-public information; matching the portfolio risk management procedures of investment advisors to their actual practices and disclosed portfolio risk management procedures; side agreements with service providers and others and the disclosures of the agreements to any affected boards of directors; identity theft; and abusive sales practices and treatment of seniors.

Since a New Year is upon us, it’s probably a good idea to include getting your compliance ducks in a row on your list of 2007 resolutions.

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