From April 20 – May 31, ACA Compliance Group, Investment Adviser Association, and BrightSphere Investment Group ran the 15th annual Investment Management Compliance Testing Survey. This survey gathers anonymous information from US investment advisers of all types and sizes for the purpose of reporting on industry trends.
This year, 384 investment adviser firms of all sizes participated. The breakdown of participants was similar to that of the past three years with: firms managing $1 billion to under $10 billion in regulatory assets under management (RAUM) accounting for 43 percent of the respondents. Roughly half of the remaining respondents were from firms managing $10 billion or more, with the other half managing less than $1 billion.
In an interesting, albeit unsurprising, shift in focus areas, Business Continuity Planning (BCP) as related to Covid-19 took the top spot as the “hottest” compliance topic beating out cybersecurity which has held the top ranking position for the last six years. Nearly two thirds (64 percent) of respondents cited COVID-19-related BCP as the hottest compliance topic, however, an overwhelming 88 percent reported that COVID-19 had caused no material impact to their firm. Additionally, 81 percent of responding firms reported that all of their employees were working from home.
“That finding is consistent with what we at the IAA have heard from our member firms repeatedly since late March,” said IAA President & CEO Karen Barr. “Due to significant testing and advance preparation, most firms were well prepared to operate remotely and serve their clients. And that underscores the most important takeaway from this year’s survey – that firms continue to strengthen their compliance programs.”
“The impact of COVID-19 on investment advisers’ ability to maintain business continuity and to continue to abide by their fiduciary duty can be seen as a litmus test which it appears the industry has passed,” said Enrique Alvarez, Senior Principal Consultant at ACA Compliance Group. “This is a great case study that demonstrates that thoughtful and careful consideration of policies regardless of topic can lead advisers down a safe path even if that path was unexpected and volatile.”
“It’s the survey’s 15-year anniversary,” noted Amy Yuter, Chief Compliance Officer of BrightSphere Investment Group. “Consistent with our initial mission in creating the survey, we continue to seek to offer regulatory hot topics to assist compliance professionals in understanding common practices and identifying practical testing options to measure, and perhaps enhance, their compliance programs.”
Completing the top five compliance hot topics identified by respondents were: Cybersecurity (57 percent); Advertising/Marketing (25 percent); Conflicts of Interest (21 percent); and ESG/Sustainability (14 percent). More than half (55 percent) of responding firms reported conducting a mock SEC exam in the past year, up from 39 percent in 2019.
The survey was streamlined this year to reduce the number of over all questions and improve the experience by utilizing survey logic to determine if certain questions (or answers) were applicable. In addition to the top compliance hot topics, the survey provided notable findings on subjects such as:
- Business Continuity Planning (with a focus on COVID-19)
While only 69% of respondents had pandemics included in their BCP, 96 percent of those without pandemics included found their BCP to still be effective. By far the most commonly stated impact from Covid-19 was employees working from home and managing new technologies, supervision, and morale.
- Form CRS
62 percent of respondents have retail investor clients entitled to receive the new Form CRS – and 41 percent reported they plan to deliver the form to all of their clients.
- Anti-Bribery and Corruption
More than half (54 percent) of respondents have adopted written Anti-Bribery and Corruption compliance policies and procedures addressing the Foreign Corrupt Practices Act, but a majority of responding firms (66 percent) do not provide advice to clients outside the U.S.
- Cybersecurity and Data Privacy
The vast majority of responding firms (93 percent) have a formal Cybersecurity program, up from 87 percent last year. Firms are engaging in an increasing number of cybersecurity assessments and tests.
- CCO Roles and Responsibilities
The majority of CCOs (60 percent) continue to wear more than one hat, with 25 percent also serving in some legal capacity.
Full results of the 2020 Investment Management Compliance Testing Survey are available below and on the IAA’s website.
About the Survey Sponsors
About ACA Compliance Group
ACA Compliance Group (“ACA”) is a leading provider of governance, risk, and compliance advisory services and technology solutions. We help our clients manage regulatory compliance, cybersecurity and risk, and performance verification through our consulting, outsourcing, and technology solutions. Our clients include leading investment advisers, private fund managers, commodity trading advisors, investment companies, broker-dealers, and domestic and international banks. For more information, please visit www.acacompliancegroup.com.
About BrightSphere Investment Group
BrightSphere Investment Group (“BrightSphere”) is a diversified, global asset management company with approximately $204 billion of assets under management as of December 31, 2019. Through its seven, majority-owned, world-class investment management Affiliates, BrightSphere offers sophisticated investors access to a wide array of leading quantitative and solutions-based, private and public market alternative, and liquid alpha strategies designed to meet a range of risk and return objectives. For more information, please visit www.bsig.com.
About the IAA
The Investment Adviser Association ("IAA") is the largest organization dedicated to advancing the interests of SEC-registered investment advisers. For more than 80 years, the IAA has been advocating for advisers before Congress and U.S. and global regulators, promoting best practices and providing education and resources to empower advisers to effectively serve their clients, the capital markets, and the U.S. economy. The IAA’s member firms manage more than $25 trillion in assets for a wide variety of individual and institutional clients, including pension plans, trusts, mutual funds, private funds, endowments, foundations, and corporations. For more information about IAA, please visit www.investmentadviser.org.