When it comes to service providers that can provide support for your RIA compliance program, you have many choices. However, hiring an attorney to support your compliance needs comes with five significant benefits that can help you navigate the regulatory and legal landmines that can detrimentally impact your advisory business.
First, managing a compliance program requires the ability to effectively interpret the laws, rules, and regulations that govern your RIA’s compliance responsibilities. Whether you are subject to regulation by the U.S. Securities Exchange Commission or one or more state securities regulators, your RIA’s responsibilities are governed by numerous complex securities laws, rules, and regulations. Attorneys have gone through years of education and training to understand how to interpret these laws, rules, and regulations and are required to pass the bar exam in order to become licensed to practice law. Compliance consultants who are not attorneys do not have to go through such extensive legal training or have to pass the bar exam to provide compliance support services. In fact, you’ll see many such compliance consulting firms include a disclaimer in their agreements clearly communicating that they are not rendering legal advice, which is pivotal to the success of any compliance program.
Managing an RIA compliance program involves much more than simply checking boxes to ensure that your advisory firm remains compliant – it involves making many hard decisions as there are gray areas within the securities laws, and, in such situations, there are no clear-cut answers on how to ensure that your RIAs does not violate such laws. In such situations, you need a knowledgeable and experienced guide who can help you evaluate and understand the risks associated with different decisions to be made, including understanding how regulators are likely to respond and what the consequences are likely to be if your firm is found not to be in compliance with such laws.
Second, attorneys are bound by various duties owed to clients that are outlined in a professional Code of Conduct that incorporates numerous ethical rules designed to protect our clients’ interests. In many ways, these are similar to the fiduciary duties owed by investment advisers to their clients. Among other things, attorneys owe a duty of loyalty to act in their clients’ best interest and to avoid conflicts of interest that compromise their ability to represent clients effectively. Additionally, attorneys must provide competent representation with sufficient skill and knowledge to effectively represent their clients. Attorneys are obligated to act diligently and promptly in handling their clients’ matters. Also, attorneys are required to zealously represent their clients. Compliance service providers who are not subject to such professional rules of conduct are not bound by such obligations.
Third, attorneys serve as your advocates. Inevitably, your firm will face scrutiny from securities regulators, and it’s vital to have someone who can defend your interests effectively during regulatory inquiries, examinations, investigations, and enforcement actions. However, even before any interactions with regulators, attorneys provide compliance support services to their clients in anticipation of how regulators are likely to respond with respect to the actions being taken with respect to your RIA compliance program, including helping to document the decisions being made and the rationale for those decisions as well as understanding how to defend the actions being taken.
Fourth, attorneys who provide you with RIA compliance support services can mitigate the hand-off risks associated with having separate firms to provide compliance consulting services and legal services. The reality is that regulatory/compliance risks are separate and distinct from legal risks faced by a firm. Regulatory risks can result in actions taken by regulators while legal risks can result in legal actions being taken by third parties, including clients, vendors, business partners, and other third parties. Yet, many compliance vendors who help firms make decisions with respect to their compliance program fail to appreciate how those decisions could result in increased legal risks to the firm. On the flip side, an attorney that helps clients with corporate, commercial, employment, and other legal matters while simultaneously representing the client with respect to compliance matters can anticipate how decisions on legal matters will impact the firm from a regulatory perspective. Reducing such hand-off risk can significantly mitigate the regulatory and legal risks your RIA firm faces.
Fifth, attorney advice is governed by the attorney-client privilege, which is designed generally to ensure that clients can communicate honestly and freely with their attorneys without being subject to having their communications disclosed. This privilege, if not compromised, affords clients the privilege of not having to disclose certain communications with third parties, including regulators, in certain circumstances.
Please schedule a consultation if you would like to discuss how our services are distinguishable from those offered by compliance consulting firms that are not attorneys.
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