Advisers’ Concerns of Off-Channel Communications Surpasses the Marketing Rule as Top Compliance Concern, Survey Reveals

Marketing and artificial intelligence (AI) follow closely behind

July 16, 2024

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Washington, DC (July 16, 2024) – Advisers’ concerns of off-channel communications eclipsed the Marketing Rule as the top compliance concern, according to the 2024 Investment Management Compliance Testing Survey published today.

Electronic communications surveillance/off-channel communications was identified by 59% of survey respondents as the “hottest” compliance topic. Advertising/marketing followed closely by 57% of respondents and AI/predictive analytics debuted in third place, with 46% of respondents including this on their list of hot topics. Other hot topics generally aligned with the SEC’s exam, enforcement, and rulemaking priorities. These key focus areas included:

• 37% cybersecurity
• 16% private funds
• 10% conflicts of interest
• 8% vendor due diligence
• 8% environmental, social, and governance
• 6% anti-money laundering
• 6% books and records

Now in its 19^th year, the Investment Management Compliance Testing Survey is a joint project of the Investment Adviser Association, ACA Group, and Yuter Compliance Consulting. It is the most comprehensive resource available for identifying the top concerns of investment management compliance professionals and the types of compliance testing and control practices investment adviser firms are using to address core compliance topics.

 

Notable Findings

 The 2024 survey, conducted online throughout May, covered a wide range of topics and offered extensive insight into common control strategies. In addition to the top compliance hot topics, the survey provided notable findings on subjects such as:

• The industry is focused on SEC exams, with 83% of respondents reporting that they are undergoing an exam or have been examined in the past 5 years. The top examiner focus areas on recent SEC exams were reported as: #1 books and records (58%), #2 advertising and marketing (57%), and #3 conflicts of interest (50%).
• Investment advisers are enhancing their compliance programs, with 65% having conducted or intending to conduct a mock SEC exam, for example, as well as increased testing. A significant portion of respondents (85%) reported that a mock exam prepared them for an actual SEC exam and identified issues and best practice enhancements.
• The top areas of increased testing include: #1 electronic communication surveillance/off-channel communications (73%), #2 advertising/marketing (65%), #3 cybersecurity (57%), #4 vendor due diligence (44%), and #5 books and records (36%). These top areas are in line with SEC rulemaking and enforcement focus areas reflecting a proactive industry; a continuing trend over the last several years. Also, the majority of respondents did not decrease testing in any area.

“With SEC staff calling for a testing program in the compliance rule, and certain rule adopting releases encouraging the consideration of industry common practices, this survey consistently delivers testing and control ideas, trending insight, and practical enhancement opportunities to the industry,” shared Amy Yuter, Managing Principal of Yuter Compliance Consulting. “We are motivated to move into our 20^th anniversary year with feedback of the survey’s value in deciphering regulatory expectations and common industry practice.”

ACA’s Global Advisory Leader Carlo di Florio shared his reflection on the survey saying, “The increasing focus on off-channel communications underscores the need for robust electronic surveillance strategies to mitigate risks and safeguard client data. Marketing, artificial intelligence (AI), cyber, and vendor oversight are other key hot topics investment advisers are testing and grappling with. Investment advisers who prioritize compliance, conduct mock exams, and embrace industry best practices are better positioned to navigate the complexities of today’s regulatory environment.”

“Investment advisers are enhancing their compliance programs to address new regulations and risks as well as to maintain their focus on their bread-and-butter compliance functions,” said IAA President and CEO Karen Barr. “The survey reflects increased testing in critical areas as the workload for compliance officers continues to expand significantly.”

 

About the Survey Respondents

Compliance professionals at 595 investment adviser firms participated in the survey. All firm sizes were represented – with 26% of respondents managing less than $1 billion in assets, 41% managing $1 billion to $10 billion, and 34% managing more than $10 billion. Close to half (42%) of responding firms reported having between 11 and 50 employees, consistent with industry data showing that most investment advisers are small- to mid-sized businesses. This year’s survey also revealed that the majority of CCOs (58%) continue to wear more than one hat (with 18% also serving in some legal capacity).

Services provided by responding firms spanned the full range of client types, including retail individuals with a typical account size of $1 million or less (35% of respondents), private funds (60%), ERISA assets/pension consultants (45%), institutional clients (58%), and high net worth individuals (56%).

Full results of the 2024 Investment Management Compliance Testing Survey are available on the IAA’s, ACA’s, and YCC’s websites, and here.

 

About the Investment Adviser Association

The Investment Adviser Association (IAA) is the leading trade association representing the interests of fiduciary investment advisers. The IAA’s member firms collectively manage more than $35 trillion in assets for a wide variety of institutional and individual investors. In addition to serving as the voice of the advisory profession on Capitol Hill and before the SEC, DOL, CFTC and other U.S. and international regulators, the IAA provides extensive practical and educational resources to its membership. For more information, visit www.investmentadviser.org or follow us on LinkedIn, Twitter and YouTube.

 

About ACA Group

ACA Group (ACA) is the leading governance, risk, and compliance (GRC) advisor in financial services. For over 20 years, we’ve empowered our clients to launch, grow, and protect their business. Our global team of 1,250 employees includes former regulators and practitioners with a deep understanding of the regulatory landscape. Our innovative approach integrates advisory, managed services, distribution solutions, and analytics with our ComplianceAlpha^® technology platform. For more information, visit www.acaglobal.com.

 

About Yuter Compliance Consulting

Yuter Compliance Consulting (YCC) is an internationally recognized boutique compliance consulting firm offering consultation and support services trusted by the industry’s chief compliance officers. Amy Yuter, Managing Principal of Yuter Compliance Consulting, has over 30 years of industry, consultation and SEC regulatory experience in overseeing investment advisers, investment companies, public companies, broker-dealers, and private funds. Amy is the founder of The Philadelphia Compliance Roundtable and the Investment Management Compliance Testing Survey. Yuter Compliance Consulting partners with clients to provide personalized consultation and support to enhance compliance resources and improve compliance programs. For more information, visit www.yutercompliance.com.

 

Note: Due to rounding, the sum of these results does not equal 100%.

 

Press Contacts

At the Investment Adviser Association, please contact Janay Rickwalder at janay.rickwalder@investmentadviser.org

At ACA Group, please contact BackBay Communications at aca@backbaycommunications.com

At Yuter Compliance Consulting, please contact Amy Yuter at ayuter@yutercompliance.com