SEC Marketing Rule Continues to Dominate Investment Advisers' Compliance Concerns, Survey Reveals

Cybersecurity and electronic communications follow closely behind

For the third year in a row, implementing the SEC’s Marketing Rule for Investment Advisers remains the number one focus for investment adviser chief compliance officers, according to the 2023 Investment Management Compliance Testing Survey.

Advertising/Marketing was identified by 70% of survey respondents as the “hottest” compliance topic. Cybersecurity followed with 52% and Electronic Communications Surveillance climbed to third on compliance officers’ list of hot topics, named by 35% of respondents. Other key areas noted align with the SEC’s exam, enforcement, and rulemaking priorities, including:

• ESG/Sustainability
• Conflicts of Interest
• Fee Calculation and Billing/Expenses
• Private Funds Regulation
• Digital Assets
• Insider Trading
• Valuation

Now in its 18^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 practices and strategies investment adviser firms are using to address core compliance topics.

Notable Findings

The 2023 survey, conducted online throughout May, covered a wide range of topics. In addition to the top compliance hot topics, the survey provided notable findings on subjects such as:

• Advisers are less remote than expected with 49% of respondents fully back or on their way back to operating as they did pre-COVID.
• The industry is focused on SEC exams, with 58% of respondents reporting that they are undergoing an exam or have been examined in the past 5 years. The top focus areas on recent SEC exams were: #1 (tied) Advertising, Books and Records, and Conflicts of Interest (48%), #2 Fees and Expenses (40%), and #3 Code of Ethics (31%).
• Investment advisers are enhancing their compliance programs, with 64% having conducted or intending to conduct a mock SEC exam, for example, as well as increased testing. A significant portion of respondents (82%) 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 Advertising (69%), #2 Cyber (65%), #3 Electronic Communications (57%), #4 Vendor Due Diligence (44%), and #5 ESG (40%). 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, other than decreased COVID-19-related testing.

“The Investment Management Compliance Testing Survey continues to provide invaluable guidance, empowering CCOs to enhance their compliance programs to meet regulatory expectations and industry best practice standards,” shared Amy Yuter, Managing Principal of Yuter Compliance Consulting. “It has been a pleasure providing this service to the industry for the past 18 years with my co-sponsors ACA Group and the Investment Adviser Association.”

“The persistent dominance of the SEC’s Marketing Rule as the primary worry for investment adviser compliance officers underscores the critical need for proactive adaptation,” shared Carlo di Florio, Global Advisory Leader at ACA Group. “The close contenders, cybersecurity and electronic communications, demand proactive measures to safeguard client data and maintain regulatory compliance. Only through proactive efforts can advisers thrive amidst these pressing challenges.”

“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 581 investment adviser firms participated in the survey. All firm sizes were represented – with 26 percent of respondents managing less than $1 billion in assets, 41 percent managing $1 billion to $10 billion, and 34 percent managing more than $10 billion. Close to half (42 percent) 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 percent of respondents), private funds (60 percent), ERISA assets/pension consultants (45 percent), institutional clients (58 percent), and high net worth individuals (56 percent).

Full results of the 2023 Investment Management Compliance Testing Survey will be available on the IAA’s, ACA’s, and YCC’s websites on July 13, 2023, 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 reimagine GRC to protect and grow 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.

¹Due to rounding, the sum of these results does not equal 100%.

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