Chief compliance officers help drive growth at RIAs (Really!)

PFI Advisors continues to tout the benefits of professional management for RIAs. As Rich Gill of Wealth Partners Capital Group recently stated on the Mindy Diamond on Independence podcast, the first two non-client-facing executive-level hires for RIAs are typically the chief operating officer and the chief compliance officer. The COO is brought in to “…make sure the trains are running on time,” he said, while the CCO is hired to “de-risk the business.”

In our opinion, both roles are needed if an RIA is going to reach its organic and inorganic growth goals.

Unfortunately, there is a commonly held belief in the RIA industry that compliance, particularly the CCO role, serves as an obstacle to the growth and operations of the firm. Advisers, primarily responsible for business development, often categorize the chief compliance officer as a “business deterrent.”

However, the CCO role is more than just the regulatory enforcer, the “no” person, or the box-checker. A well-seasoned, passionate CCO helps transform an RIA by bringing an objective and mindful stance to the typically sales-oriented decision-making of the firm.

“It’s more than just creating a report or a compliance review to put in a file to show an examiner,” said Eric Donofrio of Schechter Investment Advisors. “[The CCO] is a business partner, a collaborator, and a true part of the leadership team that’s making business decisions.”

As Heather Fortner, partner, CCO and COO at SignatureFD, said simply, “Good compliance is good business.”

[More: How much is enough compliance? SEC grumbles about firms’ efforts to cover risks]​

When an RIA is founded and the owners or partners of the new firm look to divvy up the C suite responsibilities, the role of the CCO is often handed to the partner that draws the shortest straw. That leads to this compliance role being assumed by someone who would prefer to head new business development initiatives instead of assessing how business risk could be mitigated and managed.

However, when the role is taken on by a professional with a zeal for such tasks and assessments, the firm can be taken to new levels of growth and AUM as the advisers are freed to do what they do best: creating and retaining new client relationships.

We at PFI Advisors believe that all C suite roles deserve a seat at the table when determining the future of the business.

As Jack Rader of ACA Compliance Group said, “The CCO should be the person vetting potential conflict, and if that person doesn’t exist at the table when you’re in growth mode, then you’re not properly involving the CCO in that conversation. Having that view at the table from the onset allows you to be much more thoughtful about how you’re rolling out these [growth] initiatives. It doesn’t mean saying ‘no,’ but thoroughly helps in doing things in the right order and taking the right steps to achieve your initiative.”

RIAs gain tremendous scale by removing operational and compliance functions from advisers whose primary function is business development.

By placing these roles in the hands of dedicated individuals solely focused on the running of the firm, advisers can focus on what they do best, and what they enjoy most, as we explore in PFI Advisors’ latest white paper, Exploring the Benefits of Professional Management for RIAs: A Deeper Look into Chief Compliance Officers.

As they continue to generate top-line revenue, these professional managers will be better equipped to mitigate potential business risks and manage the firm’s bottom-line profit margins.

[More: What RIAs should learn from Uber and Lyft]​

Matt Sonnen is founder and CEO of PFI Advisors, an operations and technology consulting firm for RIAs. Follow him on Twitter @mattsonnen_pfi.

Related Topics: Registered Investment Advisers