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Also available as podcast (Episode #34)
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What kind of RIA compliance consultants are there to choose from?
Utilizing the services of specialty compliance consultants is a fundamental aspect to starting and running a Registered Investment Advisor (RIA). However, there are a number of different types of firms to choose from. Some provide solely legal advice, some provide solely compliance advice, and some provide both. There are a multitude of variables (complexity, risks, cost, etc.) that are worth considering before determining which of these firm types is the best fit for your particular circumstances.
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Full Transcript:
What kind of RIA compliance consultants are there to choose from? That is today’s question on the Transition To RIA video series. It is question #34.
Hi, I’m Brad Wales with Transition To RIA where I help you understand everything there is to know about why and how to transition to the RIA model.
On today’s question, we’re going to talk about compliance consultants. I talk a lot about them because it is a big part of having your own RIA. I’ve done some videos already….first, a whole video on this concept of having to pay for your own compliance and doing your own compliance and what would that mean to you? I definitely encourage you to take a look at that video.
I also did a video on what do these compliance consultants cost? What can I expect both from an initial standpoint and then kind of an ongoing standpoint as well? Like I said, two other videos I’ve done, make sure to check those out as well. This video will complement those previous ones.
On this video, and I’ll preface it by saying, as a reminder, there are two main things you use compliance consultants for as your own RIA. The first thing is that initial upfront engagement where you literally need to set up your RIA from a legal regulatory perspective.
You need to create your ADV, you need to do all the filings, you need to create your advisory agreement, you need to get your licenses all set up underneath it. We’ll call that the startup portion of the RIA. That’s the first prong of what you use the compliance consultant for.
Then distinctly separate from that is working with a compliance consultant on an ongoing basis to assist with a whole multitude of things. Everything from your annual license renewals, to your ADV updates you have to do along the way, to if a regulation has changed and so let’s think through how this is going to impact the processes and procedures you have there in your office.
That’s why you pay a compliance consultant, to help you do all of that and to help you stay on track with all of the responsibilities you will have. It won’t be a daunting thing because these are specialty firms that help you with this exact thing. And so like I said, the two main things they help with, the startup part and then the ongoing compliance.
I would point out again those are distinctly separate. In theory, you don’t have to use a compliance consultant for either one. If you wanted to attempt to do it on your own, you could. There’s no regulatory requirement that says you have to use a compliance consultant. In reality though, every single RIA does use a compliance consultant at least to start up their firm. And any RIA of size absolutely uses a consultant firm to help them with that ongoing compliance. Sometimes you might pick one consultant firm for that startup part and a separate consultant firm for the ongoing part.
That all ties into what I want to talk about on this video….what are the differences of these compliance consultants? And I use that term kind of broadly as you’ll see, kind of use it as an umbrella terminology. But I did want to walk you through the different kinds and why you might work with one versus another, or why for part of your lifespan as an RIA, it might be one and then other parts someone else. I’ll touch on the types and then I’ll come back and go through them each one at a time.
The first one is essentially a standalone compliance consultant that helps you with that startup and helps you with the ongoing piece. The second one is a standalone attorney (law firm) that specializes in helping advisors primarily on that front end part.
Where you might be looking for an attorney, and I’ll make sure to do a whole separate video on this, really dive into how you’d work with an attorney on that front end. But if you’re coming from perhaps a captive environment and it’s a non-protocol firm, and there might be solicitation concerns to think through, there’s specialty attorneys that help in that exact part of the whole transition into the model. They provide that specialized advice on exactly how to do it properly, how not to run afoul of any issues you might ultimately have with your prior firm and things like that. You wouldn’t necessarily call those “compliance consultants”, but I’m putting them under the umbrella. Just know there’s these essentially specialty attorneys that help you walk through those particular issues.
Then the third one is firms that are combined, the compliance and the specialty attorney.
Lets start with the specialty attorneys, as I already dove into them a bit. There are certainly cases you wouldn’t necessarily need that level of guidance. For instance, if you’re already at an independent broker-dealer that clearly says you Mr. or Mrs. Advisor own your book and you don’t have any sort of…you didn’t inherit a book from the firm or anything like that, it’s everything you grew on your own, you’re generally not going to have issues or concerns that are going to rise to the point where you would need to engage one of these specialty attorneys.
However, there are scenarios where it is highly advisable to bring them into the conversation and to make sure….okay, here’s the process, here’s what you should consider doing, here’s what you should consider not doing in the process. So again, the standalone attorneys have that specialty.
Then you have, again to kind of use the same term, compliance consultant firms that are not attorneys, that are not law firms, but they are specialists in compliance. They’re often staffed with ex-regulators, directly from the SEC or maybe even large financial services firms that they came from.
So very experienced folks that know how to set up the RIA, how to do the filing, how to do the ongoing compliance, how to interpret rule changes as they come along over a period of time. It is worthwhile using these folks, again, for those two distinct steps you need to be doing.
Then third, there’s some firms that do both of these. Not only are they the traditional compliance consultant steps at startup and ongoing, they also have in-house, that legal expertise as a law firm.
An advisor that might have those potential scenarios that they want to step up the engagement and bring in that specific legal advice, might be looking to use one of these firms to say….“under one umbrella here I can get both the legal advice and expertise and guidance that I’m going to need. And that same firm, because I’ve now spent all this time working with them on the legal component, can also help set up my RIA for me and then help me on an ongoing basis. So there are those firms that are all under one roof as well.
However, you can separate this all out however you want. You might be attracted to one of those firms that does it all under the roof, but you specifically, maybe only from them want the specific guidance with respect to the legal issues. And then you say….“okay, outside of that, I actually like this compliance consultant firm over here that’s not a law firm, I like how they put together the service offering of the actual startup package and the ongoing basis.”
There’s no rules that say you have to stay with one firm over some period of time versus another, or that you have to do everything under one roof. It’s kind of like everything, there’s certainly pros and cons.
Going with a firm where it’s everything under one roof, maybe that makes things easier because you’re only having to communicate things once perhaps. However, that package of services might be more expansive than what you need for your particular circumstance, so perhaps you are better off going with the standalone compliance consultant and you don’t need that legal advice.
This is the sort of thing I help advisors think through all the time. It’s not just a matter of….”Why is it I need to be hiring these folks?” It’s also….”Okay, I get it. And in my particular scenario as an advisor, I am or are not going to need this part and this part, and maybe this part, and then who are the providers out there and why might I choose one over the other?” Again, that’s a conversation I have with advisors all the time.
The final thought to keep in mind on this – and I did do a separate video on how much these folks costs or how much they charge for their services. It really comes down to not only the cost, but why you might choose, again, the all-in-one option or the standalone options is a couple of things. For starters, how complex is your situation? Are you an independent broker-dealer advisor that’s not going to have any solicitation-type concerns at all? Or are you at a very captive firm that might take issue with solicitation and/or maybe you inherited some book or it was reassigned to you….is that going to be a concern?
The complexity is going to guide in part which of these paths you go down and likewise what the cost is as well. And with that is the risks involved. If it’s a higher-risk scenario, you’re going to want to go with maybe a more full-service offering that can really try to help you manage those risks. If your scenario is very low-risk, that might be overkill and the solution over here is better for you and perhaps less expensive for you as well.
Then the last example I would give of why advisors might choose one path over another is to some degree, some folks, even if they don’t have a very high-risk scenario or a very complex scenario, some advisors simply say….”I don’t want to take any chances and I’m willing to pay, even if it’s a premium, for someone to essentially do it all for me and basically handhold me through every step of the process. Even if it’s overkill, even if it’s more than I probably need, to me for peace of mind, that is what’s going to make me satisfied.”
So there are advisors that take that path as well. And again, that’s what I help advisors think through of do they need to go down this path? Where is their comfort level? What is their budget? Let’s find the common ground to satisfy all of those points.
Again, working with a compliance consultant is an extremely important part of having your own RIA. There’s cost involved you want to be aware of. There’s different firms out there you want to be aware of. And on today’s video, again, we recapped the different types of firms and do they involve legal, are they standalone, are they under one umbrella? This is something that you want to be aware of before you begin this process of exploring to make sure you are going down that correct path.
With that, like I said, my name is Brad Wales with Transition To RIA, where I help advisors understand everything there is to know about why and how to transition to the RIA model. Today’s video, a perfect example of that. While compliance is certainly not a glamorous, exciting part of the business, it’s nonetheless a very important part of it.
This is nothing to get overwhelmed by. It is simply part of running an RIA. Thousands of advisors have come before you and started their own RIAs and got their hands around the compliance aspect to it. But it is important to know how this process works, who you should be engaging with, what you can expect from a cost perspective, a responsibility perspective on your part. That’s the type of thing I help advisors with.
If you’re not already there, head on over to TransitionToRIA.com, that’s my website. You’ll see I’ve got plenty of videos posted. I’ve got whitepapers. Then the easiest thing to do is simply click on the contact link at the top of the page, where you can easily and instantly set up a Discovery Call with me to begin this sort of dialogue. Whether you have questions about this specific topic, or more broadly you simply want to begin that conversation about what it would mean to you to potentially transition into the RIA model as well. I’m happy to have that conversation with you.
With that, I hope you found value in today’s video, and I’ll see you on the next one.
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