Many members of our industry tend to view supervision as part of compliance when, in fact, it is its own distinct function. The complex and time-consuming nature of regulation in our space means that these two crucial functions are carried out most effectively when they are divided between separate but related teams that work in tandem to ensure that advisers and home office personnel consistently meet their regulatory obligations.
This joint approach generally places responsibility for staying current with relevant state and federal laws, regulation and interpretive guidance — as well as developing practices to make sure these rules and laws are followed — with a dedicated home office compliance team.
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The work of implementing and managing those practices belongs to a specialized supervision team, which often includes personnel and other resources that are deployed in the field.
This flexible and sophisticated approach enables firms to rapidly and effectively adapt to new regulations, while ensuring consistent compliance with existing rules across large communities of advisers.
Unfortunately, as regulations have grown more complex and made both the compliance and supervisory functions more challenging and specialized, our industry has focused closely on the compliance function, but has often overlooked the fact that the supervision function has the same need to share ideas, network and learn more about common practices.
Plenty of industry conferences offer in-depth discussions for both compliance and supervision professionals, but the fact is that these two sides of the compliance coin need specialized training to help both of them fulfill their functions as effectively as possible.
The Financial Services Institute's inaugural Supervision Workshop, held in Washington, D.C., on May 13 and 14, took a step toward addressing this challenge.
The event brought together supervision professionals, based in both the home office and the field, from across our community of member firms for in-depth discussions on topics including firms' evolving supervisory obligations when working with independent contractor advisers; properly monitoring expense-sharing agreements between advisers; and trends in recent supervision-related enforcement actions.
"Even when it comes to familiar issues like independent contractor status, firms' responsibilities are very different and distinct depending on whether you approach it from the compliance or supervisory side," said Robin Traxler, FSI's senior vice president for policy and deputy general counsel, who helped develop and facilitate the new workshop. "And when regulations get more complex, firms need to understand that their compliance and supervisory practices may face separate and distinct challenges in how they adapt."
While we have offered a dedicated supervision track at our annual OneVoice event for the last two years, many attendees at the Supervision Workshop expressed a need for more robust, year-round training content and discussion sessions to help them stay up to speed with the broad range of supervisory changes impacting them, their firms and their advisers.
As Ms. Traxler said, "We had great discussions on firms' supervisory responsibilities and risks related to compensation received by adviser-owned entities, and on cybersecurity and what firms need to do to supervise third-party fintech vendors. But what really stood out to me was the hunger that so many attendees expressed for more opportunities to get together with their peers in the specialized supervision profession to exchange ideas and hear what other firms are doing."
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Dale Brown is president and CEO of the Financial Services Institute.
