Compliance costing one day a week?

A new study reveals that 12 percent of financial advisors claim they are losing at least one full day of production each week due to compliance issues and paperwork. The study was conducted by Vestment Advisors Inc., a consulting and training firm for the financial services industry.

The 2007 Financial Advisor Compliance and Legal Concerns Survey asked 100 financial advisors around the country a series of questions regarding compliance concerns, their view on the quality of their internal and external compliance departments, and how they would change the compliance departments for the better. The respondents to the survey represent 48 different broker/dealers.

The survey revealed that 39 percent of all respondents are troubled by the amount of paperwork that must be completed to meet compliance standards. At the same time, only 7 percent of respondents are worried about the use of variable annuities.

"In our work with financial advisors and broker/dealers, we have found more and more people struggling to keep up with the amount of paperwork they must complete on a regular basis," said Katherine Vessenes, President of Vestment Advisors, Inc. "No wonder advisors are spending so much time dealing with compliance issues. Of course, if they are dealing with compliance they are not meeting with a client -- which means it is going to eat into production, sales and bottom line."

Perhaps the most troubling of all data collected is the 39 percent who indicated they have been told by compliance officers they cannot engage in an activity the advisor knew is both legal and within regulations.

"This has become such a common complaint that I think it needs to be addressed in the industry," said Vessenes. "One possible reason is that it is difficult to get experienced and competent compliance personnel. So possibly these incorrect edicts are the results of newer, under-trained compliance staff. On the other hand, you might have a broker dealer who has been burned many times in the past and has decided to take the rules, and then tighten them even more, to protect themselves. Either way it is confusing to registered reps and not necessarily helpful to the investors."

When respondents were asked what they would change about their compliance department, the answers provided some startling results. One advisor answered the question with, "The cost for compliance is over 7 percent of our gross revenue. This is more than we pay for rent." Another advisor said, "When a rejection is issued I'd appreciate an explanation of why the rejection was issued and help/advise with restructuring to both comply with the regulations and help me accomplish what I want to do."

Vessenes said many of the answers indicated the industry's compliance departments can be out of sync with the financial advisors. "This kind of confusion gives the industry a bad name and may not be protecting the investor," she said.