Small asset managers facing frequently changing regulatory demands are outsourcing compliance.
EOS Global in New York has become the Chief Compliance Office for a number of funds with a total of $20 billion under management. A member of the firm is designated the fund's CCO. Through an engagement letter, a member of EOS Global becomes an officer of the firm, covered by the asset manager's errors and omissions and directors and offices insurance policies.
"We become officers of the fund on an outsourced basis," explains Guy Talarico, co-chief executive officer and EOS Fund Services, "and we do all the reviews required by the SEC. We try to come up with policies and procedures that are prudent, match what the SEC wants, but in a way that doesn't add a burden to your operations."
For asset managers, outsourcing compliance means they have access to the expertise of a team of experts for far less than the $250,000 to $750,000 they would have to pay for an in-house compliance officer.
Mike Gamson, director of Advent Software's trade order management and compliance group, expects more asset managers to turn to outsourcing. "Registered investment advisors, mutual funds, and hedge funds are being held to new regulations, including having a designated chief compliance officer who has to follow certain rules," he explained. "That is a burden."
Since asset managers already outsource many of those services - the money manager, transfer agent, administrator, and custodian - compliance is just a natural addition.
EOS, one of the first companies to specialize in their field, is staffed by executives with MBAs, law degrees, and accounting credentials. The firm conducts reviews of asset managers' portfolios, monitors trade execution, and advises its clients on requirements in areas like document retention and email controls.
Talarico says the firm warns clients to be careful about email. "We suggest that they encourage people to be cautious in their use of words and be careful about trying to convey a joke or tongue in cheek, because humor doesn't always translate well. We have also said that no personal business should be conducted through business emails."