Have you ever wondered what areas of compliance the SEC is most focused on during their routine or limited-scope exams? Or, better yet, have you ever wished you had more intel on the different techniques or testing practices your fellow compliance officers were implementing at their firms to manage things like Best Execution, Marketing and Advertising, and/or Unsanctioned Communications?

If so, you’re in luck. Now in its 18th year, IAA, ACA Group, and Yuter Compliance Consulting have teamed up to answer these questions, and more, in their annual report, “2023 Investment Management Compliance Testing Survey.” If you’d like to take a deep dive and read through the 73-page report, click here. If you’d rather get the abridged CliffsNotes version, here are five takeaways for any compliance officer working in the investment management space.

1.) Greater than 50% of respondents were examined by the SEC in the last 1-5 years

57% of IAs surveyed have undergone an SEC exam in the last five years. Of those, 66% of respondents reported that the last exam was “full scope,” versus 34% reported that it was a “limited scope” examination.

2.) Advertising/Marketing was the biggest focus area of exams

According to respondents, Advertising/Marketing was the biggest focus area during their most recent exam. The top five areas were:

  • Advertising/Marketing (48%)
  • Conflicts of Interest (48%)
  • Books and Records (48%)
  • Fee Calculation and Billing (40%)
  • Personal Trading/Code of Ethics (31%)

3.) 67% of respondents have recently updated their personal device/approved communication methods

Considering the SEC’s focus on personal devices and approved communication methods, over 67% of respondents have made significant alterations to their compliance program. This includes:

  • Training employees on approved methods and record retention policies (72%)
  • Trained employees to forward unapproved communications to their business email (49%)
  • Sharing enforcement actions with employees to inform them of the high risk of using personal devices and unapproved communication methods (49%)
  • Requesting that employees periodically certify that they only use approved communication methods (48%)
  • Reviewing employee business emails for specific terms (e.g. “text”) (37%)

4.) IAs are performing multiple reviews to test compliance with their marketing/advertising policies and procedures

Periodically, survey respondents are testing compliance with their marketing/advertising policies, which include the following best practices:

  • Reviewing the firm’s website (61%)
  • Reviewing social media used for business purposes (52%)
  • Conducting focused reviews of newly created marketing/advertising documents (42%)
  • Searching the internet for the firm’s name (37%)
  • Conducting focused reviews of marketing/advertising employee emails (34%)
  • Reviewing a sample of advertisements based on risk or pre-approving templates (32%)

5.) Approximately 44% of respondents spend between $250K to $1M annually on compliance-related costs in 2022.

So how much does the average investment adviser firm spend on compliance? According to the results of the survey, in 2022:

  • 11% spent under $100,000
  • 19% spent between $100,000 to $250,000
  • 25% spent between $250,000 to $500,000
  • 19% spent between $500,000 to $1M
  • 12% spent between $1M but less than $2M
  • 9% spent between $2-$5M
  • 4% spent over $5M

To see the full survey results, click here.

About the Survey Respondents

Compliance professionals at 581 investment adviser firms participated in the survey. All firm sizes were represented. All firm sizes were represented – with 21 percent of respondents managing less than $1 billion in assets, 41 percent managing $1 billion to $10 billion, and 37 percent managing more than $10 billion. Close to half (42 percent) of responding firms reported having between 11 and 50 employees, which is consistent with industry data showing that most investment advisers are small- to midsized businesses. 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 percent of respondents), private funds (60 percent), ERISA assets/ pension consultants (45 percent), institutional clients (58 percent), and high net worth individuals (56 percent).