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The greater likelihood of regulatory enforcement action looms as an existential threat to advisors, money managers and broker-dealers.” –  Todd Cipperman, Cipperman Compliance Services

[The Institute for Innovation Development with this post will begin a regular review series on books we uncover of great practical value on the topics of business innovation and adjacent areas of importance, such as, this review in the area of regulatory compliance in financial services. Many in financial services complain that the high level of regulation stifles experimentation and innovation, but that is not true when you look at the jaw-dropping stream of innovations coming from other highly regulated industries like health care. The key is to fully understand the regulatory environment you operate in and learn to strategically work within that environment. That is why this book on the topic provides an excellent resource for all financial services professionals.] 

 

Institute Book Review: The Compliance Advantage

The greater likelihood of regulatory enforcement action looms as an existential threat to advisors, money managers and broker-dealers.” – The Compliance Advantage, page 2

Despite the current Trump administration’s promise to rollback legislation in general, author Todd Cipperman, CEO of Cipperman Compliance Services, warns that “firms must prepare for the advancing army of examiners and their enforcement cousins.” He cites in his book, The Compliance Advantage, the increasing activity of state regulators and SEC Chairman Clayton’s commitment of 50% of their budget to increase examinations and enforcement to a record level - with an emphasis on personal liability.  He also maps out the most significant compliance trends and offers practical insights and a definitive plan on how to protect your business.

Big Idea – Reading Regulatory Tea Leaves  

“Unfortunately, no treatise can tell you all you need to know about compliance programs and no degree program can train somebody to become a qualified chief compliance officer.” – The Compliance Advantage, page x

The best defense suggested by Mr. Cipperman is in making sense of all the regulatory data being issued by carefully shifting through the growing mountain of information to spot driving trends. This way a business owner can focus their limited time, money and effort on the actions that matter most. Years of regulatory and court precedent in the form of public statements, alerts, examination findings and enforcement cases provides you with a useful roadmap on how best to develop a regulatory compliance program for your firm.

Insight 1 – The ten must know trends to protect your firm -  

“I believe that if you understand and address these ten trends, you will materially decrease your regulatory risk.” – The Compliance Advantage, page xii

Mr. Cipperman identifies 10 critical trends that investment management executives and compliance professionals must know to protect their franchises. Each chapter of the book maps out and details each trend in a casebook format offering a proposition or statement then using redacted blog posts to illustrate, describe and prescribe a specific course of action including 5 action items suggested to address each trend:

1. The SEC is examining more advisers and bringing more enforcement actions.

2. Senior executives are targeted for firm misconduct.

3. Securities markets service providers are charged with a market gatekeeping role.

4. Flimsy compliance programs are scrutinized and punished.

5. A super-fiduciary standard is challenging investment advisers.

6. Private equity firms are forced to transform their business practices.

7. Cybersecurity and protection of customer information have become top industry priorities.

8. Product marketers are re-assessing constraints on traditional marketing, distribution, and revenue-sharing.

9. Whistleblowers are encouraged to snitch on their employers and competitors.

10. FINRA has emerged as a securities enforcement organization.

Insight 2 - Regulators are holding senior executives and external service providers accountable and personally liable.

“The SEC, FINRA, and DOJ have made it their policy to hold investment management executives accountable for regulatory breakdowns.” The Compliance Advantage, page xv

The regulators have carried through on their promise to prosecute individuals, bringing cases against CEOs, operations executives, portfolio managers, traders, in-house lawyers, compliance officers and other rogue employees. Regulatory leaders have publicly stated that they want to prosecute individuals because of the significant deterrent effect it provides. The fact that an executive could be charged personally and threatened with reputation and career-ending enforcement actions has a significant chilling effect.

Not content to limit their enforcement efforts to registrants and their executives, the regulators have also brought many cases against what they deem as “securities markets gatekeepers”, including administrators, auditors, lawyers, consultants, underwriters and custodians.

 

The Compliance Advantage is a valuable book in developing a strategy, not just in financial services, but I imagine in any industry on how not to be held hostage to changing regulatory standards and rules. The methodical process the author put into place on developing a “finger on the pulse” awareness of regulatory actions is impressive. By committing his firm to a daily blog of compiling and developing quick summaries of the ongoing public announcements of regulatory rules, statements, alerts, and enforcement actions he created the important groundwork for developing a focused strategy of action with a near surgical precision. With the exhaustive work having been being done in this book by Mr. Cipperman and his firm of compiling, analyzing and suggesting best actions to take, The Compliance Advantage can be used as an invaluable desk reference to help design your compliance program and research particular topics that affect your financial services firm.

 

The Institute for Innovation Development is an educational and business development catalyst for growth-oriented financial advisors and financial services firms determined to lead their businesses in an operating environment of accelerating business and cultural change. We position our members with the necessary ongoing innovation resources and best practices to drive and facilitate their next-generation growth, differentiation and unique community engagement strategies. The institute was launched with the support and foresight of our founding sponsors - Pershing, Voya Financial, Ultimus Fund Solutions, Fidelity, and Charter Financial Publishing (publisher of Financial Advisor and Private Wealth magazines). For more information click here.

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