Advisers’ Concerns of Off-Channel Communications Surpasses the Marketing Rule as Top Compliance Concern, Survey Reveals

Advisers’ concerns of off-channel communications eclipsed the Marketing Rule as the top compliance concern, according to the 2024 Investment Management Compliance Testing Survey published today.

“Investment advisers are enhancing their compliance programs to address new regulations and risks as well as to maintain their focus on their bread-and-butter compliance functions”

Electronic communications surveillance/off-channel communications was identified by 59% of survey respondents as the “hottest” compliance topic. Advertising/marketing followed closely by 57% of respondents and AI/predictive analytics debuted in third place, with 46% of respondents including this on their list of hot topics. Other hot topics generally aligned with the SEC’s exam, enforcement, and rulemaking priorities. These key focus areas included:

• 37% cybersecurity
• 16% private funds
• 10% conflicts of interest
• 8% vendor due diligence
• 8% environmental, social, and governance
• 6% anti-money laundering
• 6% books and records

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Now in its 19^th year, the Investment Management Compliance Testing Survey is a joint project of the Investment Adviser Association, ACA Group, and Yuter Compliance Consulting. It is the most comprehensive resource available for identifying the top concerns of investment management compliance professionals and the types of compliance testing and control practices investment adviser firms are using to address core compliance topics.

Notable Findings

The 2024 survey, conducted online throughout May, covered a wide range of topics and offered extensive insight into common control strategies. In addition to the top compliance hot topics, the survey provided notable findings on subjects such as:

• The industry is focused on SEC exams, with 83% of respondents reporting that they are undergoing an exam or have been examined in the past 5 years. The top examiner focus areas on recent SEC exams were reported as: #1 books and records (58%), #2 advertising and marketing (57%), and #3 conflicts of interest (50%).
• Investment advisers are enhancing their compliance programs, with 65% having conducted or intending to conduct a mock SEC exam, for example, as well as increased testing. A significant portion of respondents (85%) reported that a mock exam prepared them for an actual SEC exam and identified issues and best practice enhancements.
• The top areas of increased testing include: #1 electronic communication surveillance/off-channel communications (73%), #2 advertising/marketing (65%), #3 cybersecurity (57%), #4 vendor due diligence (44%), and #5 books and records (36%). These top areas are in line with SEC rulemaking and enforcement focus areas reflecting a proactive industry; a continuing trend over the last several years. Also, the majority of respondents did not decrease testing in any area.

“With SEC staff calling for a testing program in the compliance rule, and certain rule adopting releases encouraging the consideration of industry common practices, this survey consistently delivers testing and control ideas, trending insight, and practical enhancement opportunities to the industry,” shared Amy Yuter, Managing Principal of Yuter Compliance Consulting. “We are motivated to move into our 20^th anniversary year with feedback of the survey’s value in deciphering regulatory expectations and common industry practice.”

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ACA’s Global Advisory Leader Carlo di Florio shared his reflection on the survey saying, “The increasing focus on off-channel communications underscores the need for robust electronic surveillance strategies to mitigate risks and safeguard client data. Marketing, artificial intelligence (AI), cyber, and vendor oversight are other key hot topics investment advisers are testing and grappling with. Investment advisers who prioritize compliance, conduct mock exams, and embrace industry best practices are better positioned to navigate the complexities of today’s regulatory environment.”

“Investment advisers are enhancing their compliance programs to address new regulations and risks as well as to maintain their focus on their bread-and-butter compliance functions,” said IAA President and CEO Karen Barr. “The survey reflects increased testing in critical areas as the workload for compliance officers continues to expand significantly.”