Top 5 Characteristics of an Effective Compliance Officer

5 min read
April 03, 2017

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!

I say this in hopes that Chief Compliance Officers, particularly those who have assumed this position not by choice but by nature of being a firm owner, will not immediately dismiss the idea that they can possess the behaviors that are attributable to the most effective Compliance Officers. Here is my take on the Top 5 Characteristics of an Effective Compliance Officer.

  1. Inquisitive - The word “inquisitive” generally refers to as person who is “given to inquiry, research, or asking questions; eager for knowledge; intellectually curious.” Often, the process of researching regulations is viewed as a negative process, because there’s a feeling that the researcher is looking for something that they do not want to find. If the firm suspects that there may be a regulation that is going to restrict their ability to operate as desired, why would they want to find the regulation to confirm such a thing? Still, a compliance officer who has rehearsed the practice of being inquisitive will automatically default to looking for answers when there is a decision to be made, regardless of whether or not those answers create the ideal scenario for the firm’s compliance program.
  2. Self-Confident - Dealing with regulatory agencies can be intimidating. There often exists an unwritten, unspoken dichotomy between compliance and convenience, so regulatory agencies can be painted as being in opposition to what’s in a firm’s best interests. In addition, there are many cases in which the exact answer can’t be found in the regulations. It is in these cases that an effective compliance officer will think critically to examine the regulatory circumstances, evaluate risks, and confidently apply his or her interpretation to the compliance program. When the time comes, the compliance officer will also confidently communicate any interpretations and decisions that were made to regulators, as well as employees, clients, and business partners.
  3. Proactive - The importance of this characteristic cannot be overstated. It is extremely difficult to operate as a procrastinating compliance officer. Many compliance tasks are to be completed on an ongoing basis, as this is the nature of supervision. If a compliance officer allows a monthly task to lapse for multiple months, not only is it more difficult to go back and complete that task, but it eliminates the opportunity for corrections to be made in a timely manner. Similar to the positive habits that drive the favorable characteristics, negative habits that drive harmful characteristics are equally habitual. An additional pitfall is the temptation of “backdating.” In layman’s terms, “backdating” refers to completing a task and attempting to assign a date to that task that reflects that it was completed at some date in the past. This is a highly discouraged practice and if discovered in a regulatory exam, can severely damage the compliance officer’s credibility and have a negative impact on the audit.
  4. Lateral Thinking - It’s fun to picture how this works. “Lateral thinking is solving problems through an indirect and creative approach, using reasoning that is not immediately obvious and involving ideas that may not be obtainable by using only traditional step-by-step logic.” To me, the hardest concept for a compliance officer to grasp is the idea that compliance regulations are not designed to specifically address each scenario that will arise. In many cases, regulations are merely designed to prevent historical violations from recurrence, as opposed to being purposed to assist compliance officers with future items that may arise. Therefore, using only a logical approach can leave the compliance officer in limbo about what decisions to make. Also key to this characteristic is the overlap of compliance topics across various aspects of the firm. In other words, an ADV update may also impact the Advisory Agreement, the Compliance Manual, and a U4 filing. A marketing or advertising item may also affect the social media policy. By practicing the habit of lateral thinking, the compliance officer can avoid missing something based on the fact that the original inquiry was too narrowly focused, and failed to consider all items that may be indirectly impacted.
  5. Accepting - This may seem so obvious that it shouldn’t bare mentioning, but it is the most important characteristic because it describes the “initial hurdle” of becoming an effective compliance officer. Most advisers simply do not want to do “compliance”. Many compliance officers do not want to do “compliance”, even when they have been hired to do just that. It’s not nearly as fun, or as sexy, as sales, prospecting or advertising. It doesn’t seem as “necessary” as operations or accounting. Nearly every aspect of compliance, to an unseasoned compliance officer, can seem like an obstacle, or a “hindrance” to doing business. In order to excel in the role, the compliance officer has to first “accept” the responsibility, and welcome the challenge. Unfortunately, many Chief Compliance Officers genuinely attempt to be as uninvolved in their compliance program as possible, and this is not an effective tactic.

For some, these characteristics will come naturally. For others, it can be a bit of a struggle to exercise the habits that lead to the behaviors as outlined. If nothing else, simply being aware of the need to perform self-evaluations against these ideas is the first step to improving performance as a Compliance Officer. Remember: “You don’t know what you don’t know, until you find out that you don’t know it!”


Scott is a licensed Securities Principal with experience in both RIA and broker-dealer compliance. He began his financial services career in 2006 as a Registered Representative with E*Trade Financial in Alpharetta, GA. He has also worked with J.P. Morgan Private Banking in Chicago, IL and with Wells Fargo Advisors in Chapel Hill, NC. Scott’s most recent role before joining Team XYPN was as Compliance Officer of Carolinas Investment Consulting, in Charlotte NC. He’s a graduate of The University of North Carolina at Chapel Hill and holds FINRA Series 63, 65, 24, 4 and 53 Licenses.

Scott lives in Charlotte NC with his wife Meredith, and their two Sons Tyson and Jackson. In his free time, Scott enjoys watching sports, exercising, and operating the charitable organization he created upon his father’s passing.

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