Compliance officers not immune from the market's manic behavior

There is no doubt the market’s recent volatility is keeping a lot of Wall Street’s salespeople, traders and investment managers very, very busy.

But compliance officers in financial advisory offices may have a lot to complain about too because they are busier than ever keeping up with changing regulations.

Andrew Butte, senior vice president of Compliance at Dynasty Financial Partners, for one, said one of the new rules he is paying close attention to is the new anti-money laundering (AML) requirement that registered investment advisors will have to adopt. Currently, this new AML is not effective until beginning of 2026, however depending upon how expansive an RIA’s AML policies and procedures have to be, it can take several months to create, set up and incorporate.

Butte said his firm has always had robust cybersecurity and AML policies and procedures in place and already had the latest requirements around client data in place. For smaller firms, however, Butte said he can see that adopting these new procedures “may put more of a strain on probably already short staff compliance department.”

Furthermore, the increase usage in social media and digital marketing by RIAs is also shaping up to be a big challenge, according to Butte.

Elsewhere, Butte said his firm is adding more disclosure in his ADV part 2A (brochure document) to explain to clients all the fees they are being charged.

“Not only by our firm but fees charged by the securities we purchase for clients, such as mutual funds and ETFs,” Butte added.

As to which compliance strategies or tools he has found effective in streamlining his compliance processes so far this year, Butte said he has been using a compliance technology tool offered by Smartria that has helped conquer his code of ethics requirements and help in other compliance policies and procedures, including advertising review and maintaining certain logs.

Meanwhile, Patrick Hunt, CEO of Smart RIA, is staying compliant with “ever-changing marketing and advertising regulation demands” by employing well-defined policies and procedures that are effectively communicated to all employees and a team of knowledgeable individuals who are well-versed in the latest rules.

Also essential, according to Hunt, are “tools and resources, such as compliance program automation software, that simplify and streamline the process, ensuring that nothing falls through the cracks.”

Finally, when it comes to adapting to the latest requirements around client data protection and cybersecurity, Hunt points out that data protection and cybersecurity are about 10 percent design and 90 percent protocol.

“No matter how elegant and thorough your data security program design, you have to be focused, disciplined, and responsive in implementation,” Hunt said. “Social engineering through phishing and other tactics remains one of the most vulnerable threat vectors, so ongoing employee training and systems review is absolutely essential.”