Don’t Let the Compliance Fine Print Be Your Firm’s Undoing


Compliance missteps were in the news again last week when the Securities and Exchange Commission charged Alpha Fiduciary, a $700 million Phoenix-based RIA with not including necessary disclosure statements in its marketing materials.

As reported in Financial Advisor IQ, Alpha Fiduciary used back-tested performance results in advertising and other marketing materials for its multi-asset class product. To its credit, the firm did disclose that it was using the hypothetical performance numbers. The problem was that the firm often failed to include the necessary disclosures on the same pages where the hypothetical performance data was used.

It’s another example of a firm that didn’t quite get it right with the compliance fine print, and as a result, must deal with the regulatory consequences.

Unfortunately this is a fairly common scenario in the investment management industry. Small- to mid-sized firms that are growing quickly want to capitalize on as many new business opportunities as possible. But that drive to move fast, coupled with understaffed marketing and compliance areas, often leads to avoidable compliance mistakes, and costly ones at that.

In Alpha Fiduciary’s case, the company has settled with the SEC, agreeing to pay a $250,000 fine, accept a censure, hire an outside compliance consultant, and take certain other remediation measures. What’s harder to assess is the damage this compliance infraction has done to this firm’s reputation, and its impact on the firm’s business going forward.

More compliance rules are coming, even as existing regulatory frameworks continue to evolve. That means the job of tending to compliance in the fast-paced and highly competitive asset and wealth management segments is getting more complex and difficult. It also means more firms will likely make missteps with their compliance efforts.

That need not be the case, however. There are technology solutions now available that enable firms to meet their compliance requirements in every piece of marketing material. And generally speaking, the cost of these solutions is a small fraction of the fines typically assessed by the SEC or FINRA.

Rolling the dice with compliance language in marketing materials is never a good bet, and it’s only getting worse with all the new regulations and stepped up enforcement. The smarter play is to make the relatively small technology investment required to greatly reduce or eliminate exposure to this type of compliance risk.

Getting the compliance fine print wrong often comes with big consequences these days. The good news is that technology has made it easy for firms to avoid these problems and the nasty headlines they tend to generate.