One of the fasting growing changes in 21st century business is the explosive growth of companies outsourcing roles at all levels, including chief compliance officers (CCO). According to one statistic, the global outsourcing market is valued at $92.5 billion, with the U.S. market bringing in $62 billion of total international revenue.
Whether it’s to save money on benefits, cut overall costs, tap into external expertise, or a combination of factors, businesses worldwide are relying on third-party experts to achieve superior results and desired outcomes. In relation to CCOs, the outsourcing trend is also applicable to the compliance requirements of registered investment advisers (RIA) and mutual funds/ETFs, and it can also be a beneficial option for broker-dealer compliance programs.
The U.S. Securities and Exchange Commission (SEC) has specific expectations regarding outsourcing the CCO role, including requiring RIAs to disclose use of an outsourced CCO. So it’s important to assess the benefits and disadvantages of this potential solution before starting a CCO search. The following are some of the pros and cons of an outsourced CCO.
Pros of Outsourcing the CCO Role
Whether it’s utilizing their vast experience from outside the RIA world, or having their full focus on compliance versus other internal office issues, outsourced CCOs can be extremely beneficial to organizations well beyond cutting costs. Some of the benefits of outsourcing include:
- Focused/dedicated talent: RIA staff can focus on providing advisory services to their clients and marketing their firms to increase business.
- Untapped knowledge: Outsourcing provides firms with a deeper wealth of compliance resources and expertise that is not always available in-house.
- Streamlined access/resources: Outsourced CCOs have access to significant resources (deficiency letters, trends, etc.) to assist RIAs or funds in managing a proactive compliance program.
- Industry-focused outlook: Outsourced CCOs’ deep experience, both in-house and from an examiner/regulatory aspect, can be instrumental in providing an ongoing, independent and fresh perspective to internal compliance programs.
- Concentration on compliance: As an outsourced CCO, their focus is on compliance and improving your firm’s program.
Cons of Outsourcing CCO Role
Outsourced CCOs can be utilized for most of the compliance heavy lifting, but RIAs still have to be aware of their compliance obligations, and they must create a strong compliance culture. Some downsides of outsourcing a CCO include:
- Potential additional scrutiny by regulators.
- Overall regulatory compliance responsibilities still belong to the RIAs.
- Turnover within the outsourced firms can impact a firm’s program.
- Some outsourced CCOs lack a full understanding of a RIAs business practices.
- It can be difficult for some outsourced CCOs to establish effective terms of communication with the firm’s principals.
As with any business decision, there are risks and rewards for firms to consider when deciding whether to outsource the CCO role. It’s important to conduct extensive due diligence on any CCO service provider and/or individuals to determine whether to outsource the CCO role.
ACC provides proactive compliance solutions for the investment management community, including outsourced CCO and deputy CCO support, to RIAs, hedge funds, private funds, investment companies, private equity and more. We have extensive experience in the global asset management industry, which includes more than 25 years working with investment companies and investment advisers in the compliance space.
Are you considering outsourcing your firm’s CCO role? Contact us to learn more about how we can effectively and economically implement and manage your firm’s compliance program.
