Learnings from the 2024 Investment Adviser Association (IAA) Compliance Conference
This March, compliance professionals gathered at the IAA's Compliance Conference in Washington D.C., to hear the latest regulatory updates, network with peers, and gain best practices for avoiding regulatory scrutiny. The conference offered two days of a content-packed agenda, including a spirited discussion with SEC Chair Gary Gensler.
SEC-registered investment advisors and companies are confronting challenges as they adapt to new and proposed SEC regulations; these new regulations are the most substantial changes since the 2008 financial crisis. The Marketing Rule, Private Fund Advisers Rule, T+1, and outsourcing vendor due diligence are only a few regulations that firms must cover while still managing the day-to-day filings, reviews, and updates. Beyond the SEC regulations, many firms are additionally regulated by the Office of the Comptroller of Currency, Department of Labor, and FINRA. These regulations have ramifications for investment firms and their compliance teams; it’s surprising how smaller firms can sustain growth amidst the number of regulations.
Outsourcing and vendor due diligence
One panel at the conference highlighted the evolving dynamics of vendor due diligence and offered actionable insights for navigating these changes. During the conversation, panelists emphasized that the Fiduciary Standard also applies to the oversight of third parties and explored the proposed rule changes that will impact not only investment advisors, but also their service providers. A key takeaway from this discussion was ensuring vendor ability, transparency, and adaptability.
For firms partnering with service providers, reasonable due diligence must be performed not only prior to engaging with a provider for covered functions, but also on an ongoing basis. Panelists shared several methods of ensuring ongoing due diligence, from leveraging mitigations and standard reports like SOC, to engaging in demonstrations and even onsite meetings.
Additionally, the panel emphasized the importance of third-party transparency and flexibility. Vendors should possess the documentation and continuously share how their operational tools, processes, and roadmaps are better positioned to meet SEC requirements and, in turn, the investment firm. Moreover, adaptability in vendor contracting processes to accommodate evolving regulatory landscapes was highlighted as a critical factor. Firms should partner with vendors who are able and willing to navigate these changes and demonstrate flexibility in meeting the firms’ regulatory and growth needs.
Futureproofing
Many firms consider compliance a risk mitigation function. However, a solid compliance program can support firms, improve efficiencies, cut costs, and even lead to a smoother transition should the owners pursue an acquisition or merger. M&A transactions remain elevated per Echelon Partner’s RIA deal report and remain an area of interest for many firms as they look to scale. At the conference, compliance experts advised getting involved early in the due diligence process, paying special attention to client consent agreements, and maintaining realistic expectations around the tremendous amount of work for operations and technology post-deal closure.
The road ahead
Compliance is a significant part of investment management and continues to increase complexity. The insights and experiences shared at the 2024 IAA Compliance Conference underscore the critical importance of proactive compliance strategies for investment firms. The conference highlighted the necessity of thorough due diligence, strong partnerships with service providers, and the strategic advantage of future-proofing. By prioritizing these areas, firms can not only navigate the complexities of today’s regulatory environment but also secure a competitive edge for tomorrow.
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