The demand for chief compliance officers and other top compliance executives in the investment management field is booming. Searches for these positions are up 20 percent from last year at this time, search firm Russell Reynolds Associates says, and another search firm, Heidrick & Struggles, believes this “robust demand is here to stay.” Full details are available in this post on my Enforcement Action blog over at Compliance Week.
Among the many negative ripple effects from the two-year-old financial crisis, one of the most destructive has been the heavy toll on jobs along Wall Street as well as Main Street. But in at least one corner of the securities industry, hiring is booming-and experts are predicting it will stay that way.
Hunts for chief compliance officers and other top compliance executives in the investment management field are up 20 percent from last year at this time, says search firm Russell Reynolds Associates. “This is the strongest area of hiring we are seeing,” managing director George Wilbanks said in an interview earlier this month.
Competitor Heidrick & Struggles says “hiring is up substantially, and the robust demand is here to stay,” according to Tim Holt, a partner in Heidrick & Struggles’ financial services practice who handles compliance searches.
Contracting financial markets, coupled with the prospect of increased regulatory scrutiny, are creating opportunities for financial firms to upgrade their infrastructure, particularly in the compliance area. “CCOs [chief compliance officers] are in very high demand and low supply,” Holt says.
Firms are seeking “cycle-tested” compliance executives who have experienced a down market. The candidate must also have the “ability to span the enterprise,” Holt says, and be comfortable interacting with all employees from CEO on down. Hands-on experience at the Securities and Exchange Commission helps, too: “There is a premium on regulatory and enforcement experience.” The compliance executive should also be tech savvy, Holt says, and “capable of driving systemic, technologically growth-enabled initiatives.”
In a November study by Aite Group on compliance and technology in the asset management industry, author and senior analyst Denise Valentine says that the compliance officer’s role is wide-ranging: “Compliance officers work across all functional areas of the firm, and are dependent upon others to complete the job’s responsibilities.”
Qualifications are likely to include solid experience in all aspects of compliance with the Investment Company Act of 1940 and the Investment Advisers Act of 1940, the study says, plus a minimum of five to seven years of experience in the specified business area and in compliance. “Ten years of experience is more likely for a chief compliance officer,” the report adds.
“We know that hedge fund advisers will register, so one of the things they are going to need to do is to get a CCO,” Valentine said in an interview. “The SEC has been very aggressive about getting a bigger budget. They are hiring people who better represent the industry. That will translate to more audits. They usually start at compliance and legal, therefore firms may need to focus more on this area.’
Until the financial meltdown, compliance officers-and the departments they ran-were mostly low priority items at investment firms, with small budgets and little visibility.
But “the events of the last 24 months have caused the position of chief compliance officer to become what it was originally envisioned as when the Investment Advisers Act was originally passed.” says Charles Crow, a partner in Crow & Associates, a law firm in Princeton, N.J., that represents hedge funds and investment advisers.
Under the 1940 Advisers Act, updated in 2004, registered advisers must designate a chief compliance officer to administer compliance policies and procedures. According to the SEC, the chief compliance officer “should be competent and knowledgeable regarding the Advisers Act and should be empowered with full responsibility and authority to develop and enforce appropriate policies and procedures for the firm…the compliance officer should have a position of sufficient seniority and authority within the organization to compel others to adhere to the compliance policies and procedures.”
“In operations that have a vertical hierarchy, the CCO has been looked at as a necessary nuisance,” Crow explains. “That is not the case any more. What has not changed is the law. What has changed is people’s attitude about it. The CCO is more involved in granular due diligence. And so the status [of the CCO] has gone from necessary nuisance to someone we better listen to.”
In this environment, “the demand for quality senior CCOs is up considerably,” Crow says. “The reason is that the skills you need are pretty varied. You have to deal effectively with senior management. But you also have to be approachable to everyone in the firm.”
More generous compensation reflects compliance’s new visibility, Crow says. Full-time hedge fund CCOs are earning salaries of about $750,000 a year plus bonus, up from salary-plus-bonus packages “in the $500,000 range” four years ago.
Crossing the Rubicon
He doesn’t think that a new registration requirement for hedge fund advisers, which most experts regard as inevitable, will have much impact. “The big change has already occurred,” he says, namely holding the CCO personally responsible for his or her actions. “The rubicon-how much liability you can strap on the back of the CCO- has been crossed,” says Crow. “There is less collegiality in the process now. I am afraid that for the foreseeable future it will not be possible to have an interaction with regulators that is not adversarial.”
Firms can now rent chief compliance officers, in effect. Guy F. Talarico, founder and CEO of New York-based Alaric Compliance Services LLC, specializes in the outsourcing of compliance personnel and functions. The firm has 10 compliance officers and is building a core internal functionality. Clients are hedge funds, funds of hedge funds and investment advisers with assets of $500 million to $10 billion.
“There are increased searches for a compliance officer,” Talarico says. “What you are seeing with the [Bernard L.] Madoff meltdown is that having really strong internal controls built around compliance is essential to the delivery of a sound product. It’s compulsory [in order] to save yourself from bad internal practices, and to market yourself to institutional investors.”
Talarico sees compliance officers becoming front and center at advisory firms. “The CCO is no longer the guy or gal in the back room-they are in the corner office,” he says. “You can survive bad performance, but you cannot survive bad regulatory results.”