The High Cost of SEC Compliance

government here to helpThe KFG team was huddled around our conference table as the auditor dutifully and painfully went one by one through his checklist.  It was painstakingly detailed, frustrating, and at most times, boring. I wondered why we were taking away productive time we could be servicing clients to do this. Then I remembered a quote from Bill Clinton: “Golf is like life in a lot of ways, all the biggest wounds are self-inflicted.” Yes, we had asked for this audit.  Even worse, we had paid $5,000 for the privilege.

While most investment advisors live in trepidation about when the SEC comes calling, we invited our Los Angeles-based compliance attorney to fly to Rapid City on August 23 and conduct a mock SEC audit, at our expense. Kathy Arlaud, our compliance manager, spent the better part of a week rounding up documents, creating spreadsheets, and frustrating her co-workers for a host of mind-numbing details. The day of the audit found our team drifting in and out of our conference room, dutifully answering questions about everything from our investment practice to our security and our money laundering policies.

We spend a lot of time and money complying with SEC regulations. Our compliance attorney runs around $1,000 a month. We spend $500 a month backing up all of our social media postings, emails, and our website to basically prove that on any given day we didn’t guarantee someone an investment return. Staff time and other associated expenses come to another $1,500 a month, for a total cost of $4,000 a month. According to reports I’ve read, if proposed regulations of the Dodd-Frank bill are enacted on independent financial advisors, it will double our month expenditures to $8,000.

The thought of an increase in our compliance costs is extremely frustrating. We’re already spending about 5% of our gross income on complying with federal regulations to protect our clients from ourselves.




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