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This is the Transition To RIA Vendor Profile Series where we take a look at the solution providers powering the RIA model. On this episode:
Vendor name:
Dinsmore Compliance
Vendor category:
Compliance
Episode host:
Brad Wales
Episode guest:
Jeff Chapman
Vendor contact info:
Full Transcript:
Brad Wales – Hi, I’m Brad with Transition To RIA, and this is the Transition to RIA Vendor Profile Series where we take a look at the solution providers powering the RIA model. On today’s episode, we’re answering the question, “What is Dinsmore Compliance?” To help us with that is Jeff Chapman. Jeff, thanks for coming on.
Jeff Chapman – Thanks, Brad. Glad to be here.
Brad – I look forward to this conversation. Jeff is one of the few guests I historically had on my traditional Q&A series. So Jeff, thanks for coming back for round two on this. That prior podcast was talking on more of a generic level about what an outsourced chief compliance officer is. I’ll link to that in the show notes.
We’ll be touching on that same topic here, but in this podcast we’re more specifically getting to know how Dinsmore Compliance can deliver that value add for clients. So to jump right in following my little preface, at that high level, how would you describe what is Dinsmore Compliance?
Jeff – Yeah, Brad, thanks. What we do is a little different than some of the other compliance offerings out there. About 80% of our clients choose us to be a fully outsourced, turnkey solution to their compliance program and so one of our W2 employees is listed and serves as their Chief Compliance Officer. It seems to be a solution that really has some traction because it’s grown significantly since you and I chatted the last time.
Brad – That is wonderful and it shows there is certainly interest there when you’re seeing that growth. For those listening along that are maybe not yet an RIA, we’ll get into how Jeff can help folks that are already an RIA perhaps as well. But one of the big things, right, with having your own RIA is solving for how you are going to manage that compliance responsibility.
There’s several different kinds of service offerings out there from a more hands-off kind of approach to more full service. I would put you in that full service bucket. Jeff, for those that are not currently familiar with just what that concept is, what is an outsourced CCO? So maybe if you could dive into that a little more, how a CCO must be named.
Someone must do certain services, so it’s a matter of do you want that, someone directly on your team on the RIA advisory side, or would you like to perhaps outsource that? So maybe if you could just give a little more detail on what that looks like at that generic level.
Jeff – Sure, Brad. As you alluded to, we’ve really got two classes of customers. One of them is the folks that want to become an RIA, that are doing what your business is all about, transitioning to an RIA. So they might be breaking away or forming a team and establishing their RIA for the first time. Frankly, they’ll look at each other and say, who wants to be a chief compliance officer? Most of time the answer is “Not me.”
What they do is they’re looking for someone to really, as I describe it, design; build; and then operate a compliance program for them. So we’re not a whole lot different than some of the other vendors that they’re out there hiring. They’re outsourcing a lot of different pieces of their business and the compliance program can be one of those outsourced issues.
So we will take some time. We take about 45 to 60 days to get to know a team. There’s several iterations and conversations that go back and forth and talk about specifically what their business is going to look like. Not what an RIA looks like, but specifically what their business is going to look like. So the outcome there is after those conversations, we build out the compliance program that specifically reflects their business.
One thing that we’ve learned over time is the SEC also looks at what you have in your programs, policies, and manuals. If they say you’re doing something, you better be doing it. So we want this to be a customized solution that reflects exactly what that client is looking for. Frankly, when we have those first conversations, we’re assessing the potential RIA just like they’re assessing us. We always want to make sure that those people have that “culture of compliance” there and they want to do the right thing.
It’s a relationship, Brad, that lasts a long time. We have a high retention rate with our clients. It’s multi-years. Frankly, we still have our first client that we signed up in 2016 and we’ve grown substantially since then, but it’s a long-term relationship. So we want to make sure that we have a good working relationship with whoever that might be at the firm.
Brad – Something that you could perhaps expand on, we talk about outsourcing that compliance. For advisors teams watching this, if you’re at a large wirehouse firm or broker-dealer firm, you might think to yourself, I’m kind of outsourcing compliance now. Effectively, someone else is handling that for you. But sometimes a point of friction and that experience is not real good. So you might think, well, how is it going to be different if I outsource with this kind of arrangement?
I point this out in many of my episodes that in theory, if you’re at that large firm, that compliance department should be viewing you, the advisor, as the client, because without you, there is no them. That’s how it should be. That, unfortunately, is generally not how that experience goes. Where in this arrangement with a firm like Dinsmore Compliance, you literally are their client. So while you need to follow the advice that Jeff and team give you, that’s why you’re paying them is to help you manage things properly.
I think there’s a bit of a different realization of what that relationship is. I don’t know if you want to expand on that of how you’ve seen folks with a different experience, but yes, they outsourced it effectively before. Now they’re outsourcing, but it’s just a different kind of experience from what they’re probably used to.
Jeff – Yeah, that’s a good point. I’ll take it one step back here. My business partner and I started this business in 2016. I will tell you upfront, I am not the compliance expert in our firm. I’m business development. I ran businesses at regional banks. My business partner in this firm, Dinsmore Compliance, was my compliance support in many cases. So I like to say after 25 years, I’m still talking to my compliance officer, which I think doesn’t happen in a lot of cases.
What happens is that in the larger firms and the broker-dealers, the compliance programs are designed really for the lowest common denominator. They’re looking for a couple bad actors at a big firm. So compliance programs there are really designed to ferret out bad actors. Because of this, you get a lot of no’s from the compliance department in that case. So what we do is customize the programs for each RIA; we don’t have a template that we use.
We don’t put anybody in a specific program, it’s customized. When we have those initial conversations, we emphasize, just like you suggested, that we are part of the team. We know we’re trying to help you here. We are experts in what we do and we want you to get business done because, as you also alluded to, if nobody does any business, nobody gets paid here. So if you can’t grow your business, you can’t try new products.
You want somebody to be a business partner, not just the “hell, no” department. So we’re very cognizant of the fact that we’re a part of the team there. In fact, many times our employees are listed on the website of the RIAs that we serve, pictures up on the website and everything as a member of the team. That’s the way we want to be regarded.
If you have a question, we want you to pick up the phone and call us and ask that question. We’ll get into how we structure those relationships later, but it’s very important that we have that open relationship.
Brad – I think that’s a different experience than most advisors have had that have solely been in that large captive environment, as you kind of expressed. Where do you start to see this make sense from a size perspective of an RIA? I welcome your feedback of how you define size, whether you think of that as client assets or number of advisors. Where does this from your experience typically start to make sense?
For those following along that are not aware, just to give a brief background, there’s a couple other variables that could change this, but typically you have to have 100 million or more to be SEC-registered and oftentimes that might be a key pivot point. But I welcome your thoughts.
Where’s that kind of sweet spot where you’re seeing folks saying, hey, this makes sense for me to go and outsource this, the math works. We’ll get into pricing here in a little bit, but what’s that sweet spot typically?
Jeff – At DCS we serve only SEC-registered advisors to start with. It’s really a decision from the RIA as to how much they want to invest in their compliance program. So we work with people who are just transitioning over into the SEC that might be transitioning from state registration to SEC. We do have a minimum fee and sometimes people find that to be a little too much for them right at that transition point.
But others will tell us, and we’ve worked with several, that they don’t want to do this themselves, and they want to make sure they get off on the right foot. So I’m willing to make that investment. We work with firms from a hundred million in assets to about four billion dollars with a couple exceptions on both sides for various reasons.
The kind of the sweet spot is 250 million to a billion. That is when people really start to think about how this is getting to be more of a job than I want to do and handle myself so I’m going to outsource this at that point. So it’s really about how much you want to invest to make sure your program is tight there.
Brad – Where are you seeing that latter point? So clearly advisors or teams that are transitioning into the model, they have to solve for this. That’s not something currently they’d be bringing with them. But for folks that might be watching this that are already RIAs that are doing something, hopefully something of some vendor-type or however it is, they’re attempting to solve for their compliance and maybe want to pivot to something like this.
So one, I assume that’s the case where you’d be happy to have those kind of conversations. What are you seeing that is usually that pivot point? That they’ve gone through an SEC exam and they say, you know what, this would just be easier for me to outsource more of this or what is usually the pivot point for those existing firms that maybe switch to something like your solution?
Jeff – Yeah, there usually is a trigger point and it could be that the person who’s been serving as CCO is leaving. It could be they just went through an exam. It could be the fact that, for instance, I guess it’s been almost two years now that the marketing rule went into place, so another big regulation went in. They didn’t want to start with a blank sheet of paper to make something go into their policies and procedures. There usually is some kind of reason there.
Probably, recently about 60% of our new clients are new RIA registrants. Then the other 40% are people like you suggested. Many times they’ll just throw up their hands and say, you know, this is taking up too much of my time. It’s not my highest priority. It’s getting more complicated. Frankly, we’ve all experienced a great market here over the past few years, and they’re generating more revenue. They say, you know what, I’m going to invest some of that revenue in making sure that I’ve got a bulletproof compliance program.
Also, there’s a lot of M&A in the advisor space as you well know right now. If Somebody might be thinking about how down the road I might want to sell my practice or there might be a transition point here. They want to make sure that they’ve got a good compliance program in place because as you know, as the multiples get better, the better shape your advisor is in. So they want a spotless compliance program and we’ve had that comment several times.
Brad – Great. I heard a great analogy the other day, so I won’t claim I came up with this on my own, something like compliance has to be done in some capacity and the analogy is it’s kind of like mowing your yard. Most people are capable of getting out there and pushing the mower. The question is do you want to be pushing the mower or would you rather spend your time on things that are of more interest to you or you’re more passionate about? Could you outsource that “lawn mowing”, pay someone to do it for you?
I don’t want to give the impression, right, that even if you outsource compliance, like at Dinsmore, there isn’t still some work there on the local level. It’s not entirely hands off, but obviously it’s much less work paying someone else, again, to “mow the grass” in that regard.
For that transitioning advisor, you made a reference to I think it’s 45 to 60 days. How much time do you typically prefer to work through this for that transitioning advisor who doesn’t currently have an RIA?
I’d ask you to answer on two fronts. One, the entire ideal timeline from first conversation to when the RIA might be going live, Then just for folks that are not familiar, how much time is needed just for the actual registration process alone, that even if someone wanted to do this quicker, some of it’s out of your control as well from a timeline perspective. So if you could kind of answer both of those, I think that’d be helpful.
Jeff – Yeah, yeah, so there are people that will call us up and say, I’ve got to move quickly here. We need a minimum of probably 60 days. The SEC requires or is granted 45 days to respond to an application. In a real, real pinch, we could probably help somebody out there. However, 60 days gives us a chance to get policies, procedures, and manuals prepared. There’s a lot of moving parts, as you well know, which is why you help people out.
There’s cyber and there’s insurance and there’s custodial issues. So there’s a lot of moving parts. Compliance can keep up with everybody else, but really to get a program in place, we need a minimum of 45 days. I’ll tell you right now, I’m talking to several folks that are looking at second quarter of 2026, so nine months away from the day we’re recording this here.
A lot of people take a lot of time to think this through and get the right pieces and parts. But it’s never too early to get the compliance guys involved because generally custody and compliance are a couple of the first decisions that need to be made and frankly compliance is one of the impediments to people going independent.
They think that they’ve got this giant mountain that they have to climb and are not sure how they’re going to get there. So that’s what I like to say, we’re removing one of the biggest obstacles to people making their dreams come true here.
We really enjoy helping people do that. We do it dozens of times a year. I should mention, we also help with the initial registration as well. So we’re not just that ongoing compliance, but we’ll do the initial registration as well and include that as part of our service when we’re doing the ongoing outsourced CCO work. It’s included.
Brad – It starts with a conversation. I always like setting expectations here to try to bring down any friction of folks reaching out and starting to learn about this. We’ll finish here in a moment with contact info. For someone that would be that transition advisor, so it’s already a thing that’s new to them, perhaps you’re working with me or following along on episodes. They kind of work through many of these steps, but they know they need to figure this compliance thing out.
They are still multiple months away at the earliest from doing something. So if they were to reach out, schedule some time, what does that very first conversation consist of to start learning about how you can help?
Jeff – Yeah, so we’re going to talk about what your business looks like. What do you want it to look like? Is it going to look the same in three years? What are you planning on doing? What kind of portfolio management do you do? What type of advertising? How many offices do you have? So it’s really a high-level get-to-know-you so we can kind of size up the scope of what the work might be there. They’re checking us out while we’re getting to learn about them as well.
As I said, this is going to be a long-term relationship, so we want to make sure it’s a good fit. At the same time, Brad, I’m kind of thinking with our staff, who would be a good fit from our staff to work with this client from an expertise standpoint. If somebody’s doing more ETFs or they’ve got their own ETF or so I’m thinking in the background all the time who would be a good fit. Who’s got capacity right now?
We’ve been very fortunate and grown pretty quickly here. So we recruit for the specific type of clients that really come our way and make sure that we’ve got some talent available. We limit the number of clients each of our CCOs is responsible for. So we’ve got to look at our pipeline. When we see that we’ve got some more folks coming on, it’s time to recruit again and get some more people in here.
Our CCOs’ only responsibility is client responsibility. They don’t have business development responsibility. They have a limited number of clients. We have a maximum number of clients that they can handle. We want them to be available, frankly 24-7.
We’re a firm that started about 10 years ago. We’ve got about 33 people that work in our firm right now. We’re still small enough that I want every client to have my number. I want them to have my partner’s number and their CCO’s number so they’ll be able to get a hold of somebody anytime that they need someone here. So it’s a high-service model that we’re offering.
Brad – That does beg the question, for we’re talking a very customized offering, we’re talking high service offering, we’re talking the ability to outsource, nothing comes free in life, so how do you typically price something out like this?
You mentioned scope of work, so I realize there’s no cookie cutter answer to that. I’m sure you have to get in there and talk to an advisor, talk to a team, but how do you at least kind of bake the pie of what goes into a price for something like this?
Jeff – Yes, so it’s not AUM based, as you know. You know, an advisor with $250 million in assets is not half the work of an advisor with $500 million. A billion-dollar advisor is not four times the amount of work. So it’s really not AUM-based, Brad. It’s more about the complexity of their business. What type of portfolio management do they do? How much advertising do they do? How many offices do they have? How many advisors do they have?
You really don’t get disqualified from working with our outsourced compliance service from assets under management. When you get to 25 to 30 advisors, that’s probably time and we make those recommendations from time to time. You know, it’s probably time for you to bring this back in house.
So I know it sounds like I’m dancing around what does all this cost? But the way we manage our process, it’s an annual retainer. I like to say it’s a third of what you might pay somebody on a full-time basis to sit down the hall from you if you would have to hire somebody. So we think it’s a great value.
Most advisors probably don’t need a full-time-only compliance person. They probably got a COO that’s managing that in-house. But we can manage that process with people that have decades of experience and lots of experience working on SEC exams with their clients. So you get a real established compliance department for about a third, a quarter, maybe a little bit more than you would pay for somebody to sit down the hall from you.
Brad – I would expand on that by saying we’re not alluding to just a random warm body, but actually an experienced compliance professional. Someone with that background and experience level is generally not inexpensive.
So hence the idea that you could essentially get a fraction or a fractional use of someone with your solution. So I appreciate the color there. For folks that are watching along here and perhaps have an interest in the offer, what is the best way for them to reach out and to begin that first conversation?
Jeff – Yeah, we’ve got a website, dinsmorecomplianceservices.com. I’m listed on there prominently and a lot of times I’m that first call. Also, you can come in through our website via email. We get a lot of contact that way. So reach out, say you want to talk. There’s certainly no obligation. We want to make sure this is a good fit, as I’ve said before, and we’ll have that first conversation.
You don’t have to say, we’re ready to go. We understand that there’s a lot of moving parts and it’s going to take a while to get this going. Even if you’re just thinking about it, give us a call. Let’s have that conversation and we can talk to you about the services that we offer and how we might be able to help get through the finish line.
Brad – I think you’d probably agree with this. For advisors that have never been down this path, there is a degree of anxiety or uncertainty about solving for this compliance thing. That’s understandable because until you’ve taken the time to have that conversation and learn how you can solve for it, it can seem kind of a hard mountain to climb. So arguably the sooner you have that conversation, the sooner it might put you at ease that, okay, yes, this is going to be a new responsibility but it is something that I can solve for.
With that, Jeff, thanks for coming on. We’ll put the website in the show notes for those that didn’t get a chance to write that down as he mentioned it. So check it out. As was the case on my other episode that you helped me out with a couple of years ago now, thanks again for coming on for this one.
Jeff – Thanks, Brad, we appreciate it.
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