Mounting regs means more costs at money managers

Asset management companies say that greater regulatory burdens are inhibiting growth, although the heightened oversight also may be contributing to a boost in hiring, according to a survey released last week
AUG 25, 2011
Asset management companies say that greater regulatory burdens are inhibiting growth, although the heightened oversight also may be contributing to a boost in hiring, according to a survey released last week. In a poll of 100 executives at money management firms, 61% of the respondents said that “regulatory and legislative pressures” pose the “most significant growth barriers” over the next year. The survey, which was conducted in May and June by the audit and tax-consulting firm KPMG LLP, indicates that 29% of firms will target their biggest spending increase on regulatory compliance. Like companies in other sectors of the economy, investment management firms have a surfeit of cash, with 75% of the respondents calling it a “significant” amount. Unlike other sectors, however, they are beginning to spend it, with 24% saying that they are investing the money now, mostly in technology, strategic acquisitions and market expansion. Another area of spending is hiring, which again puts money managers out of step or perhaps ahead of other sectors. In the survey, 61% of executives said that they expect to expand their staff over the next year, with 32% saying that the boost will be 4% to 10%, or more. “Their balance sheets are strong, and they're beginning the hiring process,” said John Schneider, a KPMG partner and head of the firm's investment management regulatory practice. Increased regulation is spurring the employment uptick. Under the Dodd-Frank financial reform law, advisers to private-equity and hedge funds have to register with the Securities and Exchange Commission. Those firms are working on their procedures and compliance programs, which must be in place by the end of March. “As they go through the registration process, there is a recognition that there is a skill set that may be required to take on the responsibilities of the chief compliance officer,” Mr. Schneider said. That may require hiring more employees. A regulatory change that is causing a lot of headaches is the new Form ADV Part 2. Under SEC rules, the firm overview must be written in narrative form rather than provided through a series of checked boxes. In the survey, 30% of investment management executives said that compliance in this area will require a “significant” level of investment.

IAA SURVEY

The KPMG results mirror a compliance survey released this month by the Investment Adviser Association. In a sampling of 412 advisers, the organization found that 92% employ at least one person full time in a compliance or legal capacity, up from 78% last year. It also showed that the top five areas where firms have boosted the scope and frequency of compliance testing are advertising and marketing, data security, custody, personal trading and regulatory reporting, which primarily involves the ADV Part 2 form. “In these areas they have to monitor, they are putting in an increasing amount of resources,” said IAA special counsel Paul Glenn. Asset managers aren't just spending more to gird for more regulation, according to the KPGM survey. They are also preparing for a better business environment. “The other factor may be positioning for growth after the economy starts growing again,” Mr. Schneider said. But that day may be far down the road. The survey showed that 57% don't expect a complete recovery until the end of 2013 or later. Email Mark Schoeff at [email protected]

Latest News

Northern Trust names new West Region president for wealth
Northern Trust names new West Region president for wealth

The new regional leader brings nearly 25 years of experience as the firm seeks to tap a complex and evolving market.

Capital Group extends retirement plan services further with a focus on advisors
Capital Group extends retirement plan services further with a focus on advisors

The latest updates to its recordkeeping platform, including a solution originally developed for one large 20,000-advisor client, take aim at the small to medium-sized business space.

Why RIAs are the next growth frontier for annuities
Why RIAs are the next growth frontier for annuities

David Lau, founder and CEO of DPL Financial Partners, explains how the RIA boom and product innovation has fueled a slow-burn growth story in annuities.

Supreme Court slaps down challenge to IRS summons for Coinbase user data
Supreme Court slaps down challenge to IRS summons for Coinbase user data

Crypto investor argues the federal agency's probe, upheld by a federal appeals court, would "strip millions of Americans of meaningful privacy protections."

Houston-based RIA Americana Partners adds $1B+ with former Morgan Stanley director
Houston-based RIA Americana Partners adds $1B+ with former Morgan Stanley director

Meanwhile in Chicago, the wirehouse also lost another $454 million team as a group of defectors moved to Wells Fargo.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.