XYPN Roundup: The Best Compliance Posts for Independent Financial Advisors

17 min read
August 22, 2019

Did you know that advisors are, on average, 25% more stressed than other workers? This finding comes from a survey by Northern Trust FlexShares.

So what's keeping advisors up at night? Survey says... compliance concerns. Many financial advisors, novice and seasoned alike, struggle to play the Chief Compliance Officer role. It's technical and tedious, and the consequences of mistakes can be steep.

We're here to help. We rounded up XYPN's best compliance blog posts—would you believe us if we told you there are a whopping 36 of them? See for yourself below. 

Looking for a roadmap to start your own independent RIA? Check out our  comprehensive guide to starting your firm!

4 Tips for Customizing Your Firm’s Compliance Manual

RIA firms are, for the most part, required to maintain a compliance manual. While there are a few exceptions that have been granted at the state level for single-advisor firms, the vast majority of compliance officers will need to comply with this requirement.

The compliance manual (aka written supervisory procedures manual) is often the most dreaded compliance document of all.


Primarily due to the length of the document. Usually a firm’s written supervisory procedures manual will range anywhere from 60 pages to more than 100 pages long based on the firm’s size and operations.


17 Compliance Tips Every Independent Financial Advisor Should Know

Here at XY Planning Network, our compliance team has the privilege of working with hundreds of advisers to help them develop and grow their firms’ compliance programs. This unique perspective has given our team insight into common challenges and pitfalls that many advisers face.

We’re going to let you in on our secrets and share our words of wisdom for Chief Compliance Officers from the very beginning of the registration process and beyond. In their own words, here are the top tips from XYPN’s compliance team.


Compliance Considerations: How Independent Financial Advisors Can Avoid Client Complaints

There are many advantages of becoming a fiduciary, fee-for-service financial advisor, one of which is the (slightly) lower barrier to gaining client trust. While building trust with clients certainly still takes time, and in some cases can be an uphill battle, fiduciary fee-for-service advisors don't face the same obstacles as non-fiduciary advisors who operate under a much different model (and potentially under different values).


How to Create Customized Workflows for Compliance Tasks: A 3-Step Process

One of the most critical aspects of being a successful compliance officer is organization.

During a regulatory exam, the examiners will request a fairly substantial amount of documentation from your firm. You will be expected to compile and provide that documentation in an organized format that is sufficient for the examiner to complete their review.

Your firm may have been in operation for months, or even years, since its most recent review. If your firm has not maintained sufficient organization, then you may find that documentation and records are out of sync and difficult to locate when requested. Nothing is worse than trying to start from square one from a documentation standpoint while preparing for a regulatory exam. 


5 Critical Functions of the FINRA Firm Gateway

Let’s be honest, most of the feedback on the FINRA Firm Gateway website is less than stellar. Many advisors and firm owners feel that Form ADV Part 1 is clunky, and at times, the questions do not line up directly with the way the firm operates their business.  

For financial-planning-focused advisors, an emphasis on AUM disclosures creates confusion regarding how the advisor can most accurately reflect the details of their firm. Form U4, which is also filed via FINRA Firm Gateway, offers multiple filing types that often must be explained by a professional or experienced user.


Identifying and Disclosing Conflicts of Interest: A How-To for Financial Advisors

Form ADV Part 2 is the primary document created and distributed by RIAs that explains in narrative format how the firm operates. It is created and provided to regulators during the initial registration process, distributed to clients at the commencement of any advisory relationship, and maintained as a publicly available document for the entire time the RIA is in business.

One of the most important functions of Form ADV Part 2 is to disclose to clients any conflicts of interest the advisor has identified during the course of evaluating their firm’s activities and operations.

These conflicts of interest may result from other business activities of the advisor, relationships the advisor has with business partners and third parties, or affiliations the advisor has established with other financial institutions.


One Fee, Two Services: Combining Investment Management and Financial Planning Fees

A growing number of financial advisors understand and embrace the importance of including comprehensive financial planning in their suite of services. With this recognition comes the need to simplify fee payments and invoicing for clients. 

At a glance, it would seem that the most effective way to accomplish this is to combine both services into one fee. There are apparent advantages to having the client pay only one fee for both the advisor and the client.

For the advisor, it simplifies the billing and invoicing process and streamlines payment processing. For the client, this method may appear more transparent and may be easier for the client to plan for and track their household expenses. 


Viewing Monthly Financial Planning Arrangements Through a Regulatory Lens

As the financial services industry continues to evolve, fee structures are becoming increasingly creative and innovative.

From monthly fixed fee financial planning models to net worth and income calculations, advisors are constantly seeking ways to make their fees more cost effective for clients while ensuring they are able to build a sustainable business model.

The difficulty here lies in the fact that most regulatory agencies have become complacent with their understanding of traditional assets under management structures and are therefore unwilling to even entertain the idea of these new fee structures. 


Common Regulatory Obstacles When Using the Monthly Subscription Model

The monthly subscription model, while relatively new to the financial planning world, holds great promise for financial advisors and consumers alike. With the changing financial landscape across the country, more and more financial consumers will be in need of financial planning services, but perhaps without significant assets to manage.

As a vast majority of regulatory statutes are centered on assets under management (AUM) practices, so much of the onus is on financial planners to create interpretations of those regulations that fit into the scheme of a financial planning centered practice.


Compliance 101: Your First Year as Chief Compliance Officer

Compliance is one of the biggest concerns for new firm owners. Many advisers and financial planners are coming from the broker-dealer world, where compliance is presented as a Big Scary Monster. Others are career changers, and have no frame of reference at all for what RIA compliance entails. Regardless of the circumstances surrounding the adviser’s knowledge of the industry, the word “compliance” is usually associated with terms such as “rules and regulations” and “enforcement, fines and deficiencies.” These terms can cause anxiety, and as a result, there is great apprehension for first-year compliance officers.

Despite these pitfalls and challenges associated with a first-year compliance program, there are plenty of ways to address and resolve any issues that firm owners may face in their role as Chief Compliance Officer. Let’s take a look at 3 common pitfalls and challenges for the first-year compliance program, and discuss how to address them.


Transition: Leaving Your Position with an Existing Firm to Start Your Own Fee-Only Firm

Leaving a position as an Investment Adviser Representative “IAR” for an existing firm can be a scary, yet rewarding, process. Being an IAR at an established firm tends to bring about a level of comfort grounded in the idea that as long as the advisory revenue continues to be generated, then consistent income will follow.

As a Registered Representative of a Broker Dealer, oftentimes a rep may be paid a salary that is derived from pooled commissions and sales of insurance products, combined with advisory revenue and sales incentives. Alternatively, in a more traditional compensation structure, a Broker Dealer Rep may be compensated directly from commissions paid on the purchase and sale of securities.


Considerations for Discretionary vs. Non-Discretionary Investment Management

Discretionary investment management is a form of investment management in which buy and sell decisions are made by a portfolio manager or investment counselor for the client's account, without the responsibility to obtain client authorization for each transaction. An Investment Adviser must not exercise discretionary power over securities transactions without obtaining the proper discretionary authority from the client.


Six Compliance Considerations for Merging Firms

There are many reasons why a firm owner may consider merging their business with another firm. First, there may be growth opportunities that present themselves through expansion into other markets and demographics.  

Or perhaps you found another advisor that has a different skill set than you do and you've identified the opportunity for growth by creating a system based on the compatibility of your different proficiencies.  

Some firm owners have struggled to create sufficient branding for their business and are looking to join forces with another firm that has been more successful in establishing and maintaining a marketing presence.  


Three Compliance Goals You Should Set for Your Financial Planning Firm

A new year presents the opportunity to reflect, reevaluate, and refocus for the benefit of our personal and professional lives. When it comes to setting resolutions, many financial planners focus on resetting financial planning goals for their clients, such as debt management or restructuring the household budget.

But what about goals for themselves?  

From a business perspective, the new year is an ideal time for firms to evaluate their internal business practices and set goals accordingly.


Compliance Considerations: 5 Things to Know About Books and Records

When it comes to books and records requirements, there’s good and bad news. Let’s get the bad news out of the way—books and records requirements are some of the broadest compliance requirements RIA firms face.

In other words, basically every type of document that is generated, created, leveraged, and reviewed by RIA firms can fall into the category of “books and records” during a regulatory audit or examination.

The good news is that the requirements as outlined by regulatory agencies are more specific than many of the other compliance areas of interest. There aren’t quite as many grey areas with books and records requirements as there are when, for example, trying to map marketing and advertising regulations under SEC 206(4) to social media dos and donts.


Accounting for Compliance During the Initial Registration Process

A common mistake made by new firm owners revolves around the lack of experience needed to see the “big picture” of compliance. Compliance as a subject matter covers each and every aspect of a firm’s business operations, including marketing, trading and portfolio management, advisory contracts, and employee supervision. One of the most overlooked elements of this all-encompassing view of compliance is the way in which a firm’s compliance program is impacted by accounting.


Compliance Considerations: Hiring for Your RIA

While new RIA owners often have different values that shape the trajectory of their business, they are often driven by a singular goal: to grow their firm. The more clients you serve, the more people you’re giving the opportunity to live their best lives and to feel financially secure and prepared for the future. And, at the end of the day, your clients are the people who keep the lights on.

With increased growth of an RIA comes increased compliance supervisory responsibilities that many firm owners are not naturally prepared to handle. Supervisory practices that were once unnecessary for a one-person firm are now needed to provide structure for supervising additional employees. The process of adopting these new practices can seem overwhelming. By following a few critical steps, you can simplify the process while gaining a sufficient understanding of ongoing compliance responsibilities. 


The Importance of Risk Management for Your Compliance Program

Many firm owners find compliance to be one of the more slippery aspects of the business. It’s the one topic they just can’t get a grip on. Between ambiguous regulatory interpretations and the evolution of the industry as a whole, many firms struggle to stay on top of their compliance program. Fortunately, there is one critical concept that, when properly leveraged, provides a clear and concise path to getting a handle on compliance once and for all. That concept is risk management.

Compliance is all about risk management. This concept is best understood by grasping the process by which various compliance topics of regulatory focus can be broken out into areas of risk.


4 Compliance Considerations for Financial Advisors Who Offer Online Courses

Financial advisors often provide online educational content as a way of promoting their firm and attracting prospects. Online courses are an opportunity to engage with prospective clients and show them your value without an extensive commitment on their end. One of the most difficult parts of acquiring a new client is that final step where they actually have to sign on the dotted line. The opportunity to get in front of prospects without that commitment is an attractive proposition for financial professionals.


How to Play "Catch-Up" (the Right Way) on Past-Due Compliance Tasks

As a firm owner launching and operating an RIA, you must find, become familiar with, and implement a technology solution for your firm’s compliance program. As with every other aspect of your business (investment managementmarketingaccounting, you name it), the use of technology increases efficiency, streamlines operations, and maximizes productivity. In fact, it is nearly impossible to keep track of ongoing compliance tasks without the use of a compliance task management system.


Adjusting Your Compliance Program for a TAMP

One of the more daunting tasks for a financial planner is to determine how to integrate investment management services into a financial planning practice. Many fee-only RIAs focused on financial planning may find the need to charge based on assets. In this situation, using a TAMP can fill the gap, so let’s take a look at the compliance perspective and process of adjusting your compliance program for a TAMP.


Compliance Considerations for Cryptocurrency

With the rise of cryptocurrencies and Initial Coin Offerings (ICO’s), the industry has its ears perked at the prospect of something “new.” For decades, the investment advisory space has been occupied by traditional investment strategies, consisting of some asset allocation mix of stocks, bonds, mutual funds, ETFs, and the occasional private placement investment that offers attractive returns in exchange for limited liquidity for accredited investors. Perhaps for high net worth investors, an occassional non-securities investment recommendation has created additional opportunities for diversification outside of traditional investment strategies. Therefore, it makes perfect sense that both market professionals and investors are interested to hear more about cryptocurrency. The questions that advisers can expect from their clients surrounding these offerings are generally similar to the questions received on traditional investment products. 


Choosing a Compliance Consultant? Read This First!

Many firms struggle with compliance. There is a plethora of unanswered compliance questions that generally start with the firm registration process, and continue through ongoing compliance and audits and examinations. Regulatory agencies generally don’t spend much time and energy trying to make things “easier” for firms. Oftentimes, it’s difficult to get in touch with regulators, and when firms are finally able to reach someone at the office, it’s next to impossible to get a simple “yes or no” answer from them. That means that compliance processes that are already unfamiliar are further complicated by the inability to find adequate support from the jurisdiction that is in charge of reviewing and approving compliance items. Enter: the compliance consultant.


Compliant Document Storage for RIAs: What You Need to Know

Compliant cloud document storage, or storage of data in general, is a hot topic right now. There's not a lot of guidance being provided by the SEC or state regulators in regards to actual, concrete rules around what advisors need to do in order to ensure their documents are stored in a compliant manner.

The best that we have right now? FINRA has released some rules around the idea that they prefer documents be stored behind a 256-bit encryption format. But this was created by FINRA, and it's not a hard and fast rule -- so it doesn't necessarily apply to SEC- or state-registered firms, and at this point it's unclear how it might apply.

There are a few things you can be doing to ensure that, as a financial advisor, you're being smart with your data. We want to be compliant and we also want to be sure we're not hacked and client-sensitive data is being stolen out of our systems. You never want to be the one to make a phone call to a client to tell them their identity was stolen thanks to a hack at your office.


Compliance Regulations When Relocating Your RIA to Another State

It can be difficult navigating the regulatory landscape as a state-registered firm. The lack of consistency regarding regulatory interpretations and guidelines between one state and another can create confusion and uncertainty for firms that are attempting to operate in multiple states. While it is usually seen as a safe haven to rely on SEC regulatory statutes, as firms grow, the need will inevitably arise for considering compliance regulations across multiple states. Particularly with the rise of virtual firms, there is an expectation to see more and more advisors that are relocating their advisory business across state lines. Here are some items to consider for RIA firms when transitioning from one state to another.


RIA Compliance: Updating Language in Your ADV Part 2

Inevitably, every firm will be faced with ADV Updates. Inherent in the growth of your business is change, and with those changes come the regulatory obligation to make updates to your ADV Part 2.

Here are a few quick tips to help you confidently navigate what you need to know about RIA compliance and serving as your own CCO.


5 Compliance Issues to Consider When Changing Your Fee Structure

Changing your fee structure to better serve Gen X and Gen Y clients might be a smart business move if you’re a financial planner with an established firm.


In the past, providing advice on an AUM model made good sense for traditional clients. The financial planning industry was built to serve the needs of the Baby Boomer generation, and the business models created along with the industry made good sense for these clients.

The main reason it worked so well: these clients had assets to manage.


Top 5 Characteristics of an Effective Compliance Officer

Nobody’s perfect. Each person is uniquely different, embodying their own set of qualities and characteristics. Some behaviors are deeply engrained as a result of environment, childhood, genetics etc., and other behaviors are learned by repetition and adaptation. Humans are creatures of habit, so it’s safe to suggest that habitual behaviors play a major role in the shaping of who we become. There are tons of catchy phrases and quotes that we subscribe to, as an exercise in our personal and professional development. By now, we have all heard ideas such as “We are what we do repeatedly”, and “Excellence is not an act, it’s a habit.” If you haven’t heard these mantras, check LinkedIn to make sure it’s working correctly!


8 Things to Do to Prepare for an RIA Audit

No RIA owner wants to think about getting audited, but it’s a possible reality you may need to deal with if you run your own financial planning firm.

Instead of feeling stressed or scared about what you’ll do if this ever happens to you, how about taking a more productive action? Don’t worry. Educate yourself and know how you can prepare should you ever need to go through an RIA audit or technical visit.


Everything You Need to Know About Preparing for State Registration

Wouldn’t it be great if everything in life came with an instruction manual? I’m not talking about the hieroglyphics that IKEA includes with their furniture (eek!), but a real, honest-to-goodness guide to each step of the process in crystal clear, black-and-white print.

Preparing for state registration of your RIA is one example where a guidebook would be extremely welcome. Anyone who has spent ten minutes or more Googling, “How do I register an RIA in X state?” knows what I’m talking about; the information is confusing and often contradictory. 

Part of the ambiguity comes from the governing body overseeing state registrations… or rather, the lack thereof. Each state is responsible for regulating the registration of RIAs operating in their borders.  


Handling Compliance Items that Inconvenience Your Clients

There is an undocumented struggle between compliance and convenience that every Chief Compliance Officer must come to terms with.

Many times, a client will need to sign an additional document or resign a document you already executed. Or maybe a client may be forced to receive a disclosure or a document that they are not interested in reviewing.

And in some cases, there may be types of investments that the client wishes to add to their portfolio, but these investments are either not suitable for the client or are unreasonable from investment management perspective.

So how should you handle compliance items that inconvenience your clients? Consider these factors to help you decide what to do.


Communicating With Your Clients About Compliance

Inevitably, there will come a time when maintaining your compliance policies will create some sort of inconvenience for your clients. Perhaps the adviser sent the client the wrong form to have them sign, and they will have to sign the correct form in a separate sitting. Or maybe the client received the correct paperwork, but they failed to initial in the appropriate location.

Another common occurrence, is for the client to be in a bind and in need of an expedited service that requires their signature, and they aren’t “near a fax machine”, or they are in a location that “doesn’t have access to email” for them to receive and return needed documentation. Although these occurrences can’t be completely avoided, there are a few things that can be done to more effectively prepare clients for compliance obligations, so that the compliance program doesn’t incur unnecessary risks.


What an RIA Owner Should Know About Communicating with Regulators

Every RIA owner must have a designated individual who serves as the primary compliance contact. This person is usually referred to as the firm’s compliance officer, or Chief Compliance Officer (CCO).

And if you’re the RIA owner and the sole person in the business, that means you.

The primary responsibilities of a compliance officer are to make sure the company complies with regulatory requirements and adheres to the firm’s set policies and procedures. In order for the compliance officer to do the job effectively, they must be familiar with regulatory requirements.

These requirements will be what internal policies and procedures are based on and amended as needed. Therefore, one of the most vital aspects of being a successful compliance officer is knowing when and how to communicate with your regulators.

Here’s what RIA owners need to know to ensure these communications are effective and productive:


Understanding RIA Custody of Funds or Securities

If you run your own financial planning firm, you need to understand the compliance rules and regulations around RIA custody. This is even more important for financial advisors running a monthly retainer model in their business, as the lines can easily blur and staying compliant with current rules can pose a challenge if you’re not educated on the topic.

Registered Investment Advisors who have the ability to withdraw funds or take possession of securities -- specifically stock certificates -- from clients accounts are required to safeguard those assets according to the SEC’s custody rule.

This rule was designed to protect investors and provide safeguards against theft or misappropriation from investment advisors.

Here are a few things you should know about the custody rule to ensure you remain compliant around RIA custody of funds or securities, and maintain the safety of your clients investments.


What Advisors Need to Know about Solicitor Referral Arrangements

As a financial advisor, you know you need to engage in smart networking in order to succeed. The ability to make connections within the industry and work closely with centers of influence is vital to growth and sustainability for your financial planning firm.

Of course, the biggest value someone in your network can provide is to give you a client referral. And because referring clients to other practice and accepting referrals from other advisors is a big part of operating your business, regulators have weighed in on the importance of identifying solicitation and referral arrangements.

It’s of utmost importance for you as the RIA owner to ensure these activities are transparent and remain in the best interest of the client. So how do you go about fulfilling your responsibilities with referrals on the compliance side?

Here’s what you need to know about solicitor referral arrangements, and items to consider from that compliance perspective.


Calculating Your Assets Under Management

Every year, Registered Investment Advisory firms must calculate their Assets Under Management as a part of their annual ADV Update. For firms that focus on Financial Planning, this can pose an interesting dilemma. Where is the line between providing advice on investments, and actually managing the assets? While that line may not always seem clearly defined, the SEC has provided guidance to help firms understand the distinction clearly.


Your firm, your terms. It can be done. Show me how.

Kelly Moorman_300x300About the Author
As XYPN’s Content Manager, Kelly Moorman is tasked with communicating the Network's value proposition to the world. For years, Kelly has helped organizations tell their stories in ways that inspire others to listen, and to care. Her penchant for a well-crafted sentence, good grammar, and clever wordplay has earned her the moniker “Word Whiz” around the XYPN office. She’s thrilled to share XYPN’s story with you and the rest of the world.

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