COMPLIANCEWORKS PHILOSOPHY
Regulatory compliance is often shunned or ignored as nothing but a drain on human and financial resources due largely to the self-imposed mysterious shroud of what is required to have an effective compliance program. Many business owners have classroom or experience in portfolio theory, accounting, principles of management and marketing, but few have experience in regulatory compliance.
Maybe compliance is not necessarily intuitive, but that is not to say that compliance is difficult either. Many firms, particularly small firms, lack the resources or background to implement an effective compliance program. But really, once organized, an effective compliance program can be fairly easy to administer with a reasonable commitment of resources.
Compliance programs are about mitigating risk. Investment firms face risk from regulatory bodies in the form of fines and penalties (including reputational penalties) and risk from legal action by clients or employees or other third parties. These risks are significant in that if a worst case scenario unfolds, it can bring down a firm. There are cases where a firm minimized compliance for years until the day came where regulators brought action against the firm in the form of fines to the firm and to management. In one case a legal action was lost due to insufficient documentation and resulted in a seven figure judgment against the firm.
Diminishing Return Curve
What is the reasonable commitment of resources given the potential severity of the risks? Just as advisers evaluate the risk tolerance of their clients, firms need to evaluate the risk tolerance for regulatory/legal risk. The commitment of resources is similar to an inverse diminishing returns curve as presented below:
With level of risk exposure on the y axis and resources allocated to compliance on the x axis the graph shows the basis for ComplianceWorks approach toward developing compliance solutions for firms. The graph indicates that a firm that allocates too little resources (human and financial) to compliance really does not reduce the regulatory and legal risk exposure to any great degree. However, once a firm allocates sufficient resources to push down the curve into the optimal allocation or "sweet spot", it greatly reduces risk exposure to acceptable levels. But, if a firm decides to try for perfection or to push past the "sweet spot", it hits a point where the incremental resource commitment does not proportionately decrease risk exposure - risk exposure reduction hits a diminishing return for additional resources.
Business Solutions to Compliance Problems
This may come as a shock to some compliance professionals, but the role of compliance is to support the business efforts of investment firms not vice versa. Compliance should not dictate procedures on how to run the business model, but should conform to the procedures that most efficiently administer the business model. Therefore, solutions to compliance problems must make business sense as well as bring the firm into regulatory and legal compliance.
ComplianceWorks Experience
ComplianceWorks' staff has direct experience in other areas of an investment firm and not just in compliance which gives them a greater sense of the business implications of their compliance solutions. Some consultants are ex-Chief Compliance Officers and all are experienced compliance professionals. Unique to ComplianceWorks relative to other compliance firms, certain staff members have extensive experience in the Hedge Fund environment. The President of ComplianceWorks, Jeff Groves, was at a Hedge Fund that was dually registered as an SEC investment adviser and a broker dealer for over 16 years. Contributing to a full understanding of the hedge fund as a business is the fact that in addition to being the firm's Chief Compliance Officer, he also headed up the sale of a fixed income research product, traded equities and developed and maintained statistical quant models during his tenure. Broad experience like this typifies ComplianceWorks professionals.
ComplianceWorks and Your Firm
ComplianceWorks is committed to provide compliance assistance to small to medium size investment advisers, broker dealers and hedge funds. Due to the experience of ComplianceWorks staff with investment firms, we understand the frustration of having compliance "requirements" dictated to you that are unrealistic for your organization. Our experience is what creates the approach of keeping business considerations like cost and resource allocation in mind as we develop customized solutions to your compliance issues. ComplianceWorks specializes in providing a hands-on, proactive approach in devising a system by which our clients administer an effective compliance program, even with limited resources. Compliance does not have to be mysterious, difficult or expensive, compliance solutions are at hand for your firm.
Regulatory compliance is often shunned or ignored as nothing but a drain on human and financial resources due largely to the self-imposed mysterious shroud of what is required to have an effective compliance program. Many business owners have classroom or experience in portfolio theory, accounting, principles of management and marketing, but few have experience in regulatory compliance.
Maybe compliance is not necessarily intuitive, but that is not to say that compliance is difficult either. Many firms, particularly small firms, lack the resources or background to implement an effective compliance program. But really, once organized, an effective compliance program can be fairly easy to administer with a reasonable commitment of resources.
Compliance programs are about mitigating risk. Investment firms face risk from regulatory bodies in the form of fines and penalties (including reputational penalties) and risk from legal action by clients or employees or other third parties. These risks are significant in that if a worst case scenario unfolds, it can bring down a firm. There are cases where a firm minimized compliance for years until the day came where regulators brought action against the firm in the form of fines to the firm and to management. In one case a legal action was lost due to insufficient documentation and resulted in a seven figure judgment against the firm.
Diminishing Return Curve
What is the reasonable commitment of resources given the potential severity of the risks? Just as advisers evaluate the risk tolerance of their clients, firms need to evaluate the risk tolerance for regulatory/legal risk. The commitment of resources is similar to an inverse diminishing returns curve as presented below:
With level of risk exposure on the y axis and resources allocated to compliance on the x axis the graph shows the basis for ComplianceWorks approach toward developing compliance solutions for firms. The graph indicates that a firm that allocates too little resources (human and financial) to compliance really does not reduce the regulatory and legal risk exposure to any great degree. However, once a firm allocates sufficient resources to push down the curve into the optimal allocation or "sweet spot", it greatly reduces risk exposure to acceptable levels. But, if a firm decides to try for perfection or to push past the "sweet spot", it hits a point where the incremental resource commitment does not proportionately decrease risk exposure - risk exposure reduction hits a diminishing return for additional resources.Business Solutions to Compliance Problems
This may come as a shock to some compliance professionals, but the role of compliance is to support the business efforts of investment firms not vice versa. Compliance should not dictate procedures on how to run the business model, but should conform to the procedures that most efficiently administer the business model. Therefore, solutions to compliance problems must make business sense as well as bring the firm into regulatory and legal compliance.
ComplianceWorks Experience
ComplianceWorks' staff has direct experience in other areas of an investment firm and not just in compliance which gives them a greater sense of the business implications of their compliance solutions. Some consultants are ex-Chief Compliance Officers and all are experienced compliance professionals. Unique to ComplianceWorks relative to other compliance firms, certain staff members have extensive experience in the Hedge Fund environment. The President of ComplianceWorks, Jeff Groves, was at a Hedge Fund that was dually registered as an SEC investment adviser and a broker dealer for over 16 years. Contributing to a full understanding of the hedge fund as a business is the fact that in addition to being the firm's Chief Compliance Officer, he also headed up the sale of a fixed income research product, traded equities and developed and maintained statistical quant models during his tenure. Broad experience like this typifies ComplianceWorks professionals.
ComplianceWorks and Your Firm
ComplianceWorks is committed to provide compliance assistance to small to medium size investment advisers, broker dealers and hedge funds. Due to the experience of ComplianceWorks staff with investment firms, we understand the frustration of having compliance "requirements" dictated to you that are unrealistic for your organization. Our experience is what creates the approach of keeping business considerations like cost and resource allocation in mind as we develop customized solutions to your compliance issues. ComplianceWorks specializes in providing a hands-on, proactive approach in devising a system by which our clients administer an effective compliance program, even with limited resources. Compliance does not have to be mysterious, difficult or expensive, compliance solutions are at hand for your firm.