Compliance Professionals Again Take Center Stage
November 8, 2004
Much as we'd like to move along to something else, we're forced by current events to end the year with yet another discussion of compliance jobs. One year ago, we had Eliot Spitzer to thank for moving the noble profession of compliance professional out of the wings and directly onto center stage. Here we go again.
One year ago, compliance professionals could have expected to earn a respectable living. But with the new compliance program requirements effective Oct. 5, compliance professionals with the right skills and experience can more or less write their own tickets.
With the kind support of NICSA, PA Compliance, PFPC and SalesLink, Diversified Management Resources recently conducted a survey of industry compliance trends and practices. One interesting finding had to do with the previous experience and compensation prospects of chief compliance officers (CCOs).
We learned that most incumbent CCOs were appointed to the role from within their firms. This was not particularly surprising, given the immense amount of effort money managers were required to expend in preparing for the Oct. 5 requirements, as well as the time involved in recruiting qualified people from outside. Also, to perform the compliance management function, a CCO needs to have an intimate knowledge of the way things work, and the learning curve for outsiders can be pretty steep.
Most current CCOs, we found, moved into the role from their employer's operations area. We found this to be an interesting, although logical, move. Operations professionals are nothing if not focused on the details, and they're exposed on a daily basis to the trade processing, accounting and other basic infrastructure functions that support all aspects of a money management firm.
Attend an ICI operations conference or a NICSA meeting and you'll see quickly enough that these are people who know how to get the job done. By nature, they pay attention to the details. Unlike many other functions, sales and marketing, for example, operations experts have a pretty clear sense of the quality of their work: It is either right or wrong. Processes either perform as expected or they don't. All of this is good training for the CCO role.
Unsurprisingly, when firms recruit CCOs from elsewhere, they target people who have previous compliance or regulatory experience. Some operations exposure is desirable, but not as important as a directly comparable work history.
And, as expected, compensation is strong. We asked industry professionals how much they expect to pay a chief compliance officer. Nearly one third of our survey participants said they expect to pay cash compensation of $300,000 or more.
Going forward, recruiting CCOs will continue to be quite a challenge. Larger firms are most concerned about the fact that qualified people have many competing job opportunities, while smaller firms are concerned about cost. CCOs will surely have their hands full, too. Which area of the business will continue to require close attention and supervision? Sales, closely followed by marketing. Both were ranked as least likely to proactively support compliance requirements, whereas operations and portfolio management were ranked as first and second likely to support compliance requirements.
In sum, how will the newfound prominence of compliance departments affect the mutual fund business? Substantially, we'd say. Watch for new value-added marketing programs more focused on customer needs than product performance. Watch for more educational efforts. Watch for even more emphasis on Web sites as platforms to deliver information that can be updated more quickly than traditional print. Watch for simplification of the alphabet soup of fund share classes, and in-depth, customer-centric due diligence as new products are developed. Finally, watch for continued product and service innovation, but with a more conservative twist.
Charles O'Neill is a principal with Diversified Management Resources, a marketing and executive search firm. For more information on the DMR survey, please visit www.dmrfinancial.com.