In an article today posted on the AdvisorOne website, Chief Compliance Officers received a number of stern warnings at the recent Investment Adviser Association’s annual compliance conference in Arlington, Va.

Robert Plaze, deputy director of the Securities and Exchange Commission’s Division of Investment Management spoke about the changes and improvements being made by the SEC.  He indicated that the SEC has established a new division, the Asset Management Unit that is a part of the SEC’s Division of Enforcement.  In Mr. Plaze’s words, “this unit is dedicated to suing you (the CCO)”.  The unit is staffed by people who, in Mr. Plaze’s  words, “understand the asset management business”.  The unit will be  and collaborating with not only the investment management division but also with the agency’s Office of Compliance Inspections and Examinations.  Mr. Plaze indicated that the unit has allowed the SEC to be more effective in it’s oversight of registered investment advisers as well as providing them with the ability to perform more effective examinations.  This new unit has been tasked with ensuring that every investment advisory firm has adopted accurate, adequate written compliance policies and procedures.

Other industry experts speaking at the conference spoke about the need for investment advisor CCO’s to be “qualified” and be treated as if the individual is a principal in the firm, even if this person does not retain any firm ownership.  They recommended that CCO’s be involved in every facet of the firm’s day to day activities and that their should be good communications between the CCO and the firm’s management in regards to the on-going compliance management program.

With the SRO debate continuing into the new year, it appears the OCIE is not waiting and is working on some enhancements to investment advisor examinations.  In an article in the December 2011 edition of Investment Advisor Magazine, Carlo di Florio, director of OCIE recently spoke about some of the up coming changes.

The SEC feels that “ethical cultural objectives should be central to an effective regulatory compliance program”.  For this reason, how firms are manging their fiduciary responsibilities both within the spirit and letter of the law is becoming a central focus during examinations.

This type of ethical environment as the SEC calls it,  is becoming central to the SEC’s new risk-based examinations.  The SEC has been interviewing firms to understand the the key risks they are facing, how those risks are being managed and the effectiveness of the firms risk management process.  Determining these risks and how firms are managing them is allowing the SEC to assess the tone and culture around compliance. di Florio stated that if the examiners uncover a tolerance of “nonchalant attitude toward compliance, ethics and risk management”, that this would be factored into their analysis of the firm and identify where a examiner should focus their efforts during an exam.

The article also states that OCIE is also reviewing its own internal compliance management program with a view towards strengthening and monitoring how well OCIE is following its own process and guidelines.  They are also working on an exam manual that identifies the divisions key policies and standards around examinations and enforcement.

According to an article in Finaincal Advisor Magazine, Schwab Advisor Services has launched a consulting program that helps advisors use a “segmentation strategy” to identify clients’ potential profitability.

Called Managing Client Profitibality, the program is based on Schwab’s 2010 RIA Benchmarking Study. The study found that a small minority of an RIA clients account for a significant share of revenue: 7 percent of clients account for 38 percent of a firm’s revenue on average.

The program includes a “client profitability modeling tool” to determine client-level profitability and enable advisors to see their firm’s revenue mix.

“We have found that advisors who take a strategic and proactive approach to client segmentation are often the best poised for future growth,” said Nick Georgis, vice president at Schwab Advisor Services.

“As firms form their business and acquire their clients over time they find that they’ve got a range and a mix of clients,” said Scott Slater, managing director of business consulting for Schwab Advisor Services. “What we’re trying to help them do is to stratify where their profitability is coming from and where their time is going as well. We’re trying to help them do a better job at aligning those two.”

“We will work with each firm and use some of the  proprietary [monitoring] tools that we have developed,” Slater said. “One is a spreadsheet that helps the firm more quickly get to both their [client] revenue mix and their cost to serve [clients], so they’re making better judgments on ‘where is our time going and why.’”

In an article in Financial Advisor Magazine, Fidelity Investments executives claim that financial planners can significantly eclipse their earnings potential by switching from a traditional firm-owned wirehouse to their own independent registered investment advisory. According to Fidelity’s latest white paper issue this month, financial advisors considering breaking away from their current wirehouse company to start their own RIA firm can reap millions in after-tax profits. In its new white paper, Options for Independence: Tax and Succession Considerations, Fidelity claims that over a ten-year period, RIAs could pocket as much as $21 million more in after-tax income than if they had stayed at a wirehouse.

Another advantage to going independent, says Michael Durbin, president of Fidelity Institutional Wealth Services, is the ability to transfer an RIA firm to future generations, even if the beneficiaries are not advisors themselves.

In an article in Investment News, according to Morningstar Inc., only about 40% of fund managers invest in their own funds. Of that minority group that is “eating its own cooking,” about 60% are equity managers.

“It’s a little baffling to me why we see so many portfolio managers with zero money invested in their own funds,” said Laura Lutton, editorial director at Morningstar.

Overall, it is difficult to understand why a portfolio manager can’t invest even $1,000 in his or her fund, if only to replace the zero investment figure on public filings.

Beginning in 2005, the Securities and Exchange Commission required fund manager investment status to be filed under a statement of additional information.

Beyond the symbolic benefits of showing investors that a manager has some skin in the game, there are real and measurable advantages to having the portfolio manager in the investor pool.

According to Morningstar’s continuing stewardship research on funds and fund companies, on average, the more money a portfolio manager invests in a fund, the better the fund does.

Of the funds at the highest manager investment level of more than $1 million, the average star rating is 3.5 and the average manager tenure is more than 12 years.

On the opposite end of the spectrum, including funds where the manager has no money invested, the average star rating is 2.9 and the average tenure is 4.6 years.

Morningstar includes portfolio manager investment data in its overall stewardship analysis, which will be part of the forward-looking analyst fund ratings that will make their debut this year.

In an article in AdvisorOne, late last year, in a study group discussion among LPL Financial advisors in Southern California, brokerage executives asked the advisors to identify what they most needed help with to build their business. Tops on their wish list: the professional development of staff.

“One of the clear messages was: ‘I need help with my staff. What can I do to help them grow?’ They want to offload, delegate, encourage staff to take on more responsibility,”.  “The more productive and efficient the staff, the more productive and efficient the advisor will be.”

In an article in the 7/6/11 editon of RIABiz.com, Envestnet long known for  beening the undisputed leading platform for separate account managers, used by tens of thousands of advisors. The portfolio management software capability it provided, on the other hand, was always viewed as an add-on service. No more. Last year, Envestnet Asset Management” took the Silicon Valley- and Trivandrum, India-based technology unit and began to offer it as a standalone service called Envestnet Vantage. “We always aim for leadership in the markets we enter and are approaching the world of RIA reporting with that same commitment, plus a history of deep expertise,” says Envestnet president Bill Crager. “We have the scale to have a significant impact on the marketplace … Envestnet takes the burden from the advisor’s office and handles it cost effectively and accurately better than anyone else.”

Now that Envestnet has gotten a taste for this high-margin niche, its goal is “absolutely” to be the countervailing force to the coming Advent/BlackDiamond juggernaut in terms of scale, integration, product offerings, staff, support and pricing, according to James Lumberg, co-founder and executive vice president of business development for Envestnet.  “We see this as a large robust business unto itself,” says Lumberg. “Our ambition is to become the leading provider of aggregation performance reporting and billing solutions in the marketplace, and we’re investing accordingly.”

With 450 employees, Envestnet believes it has the workforce and the infrastructure to provide RIAs with an edge on data accuracy and overnight reconciliation. Two hundred employees are dedicated to matters relating to back office technology, ensuring that data is “trade ready” and accurate on a daily basis, according to Marion Asnes, chief marketing officer of Envestnet. Besides the data-dedicated employees, Envestnet claims Vantage’s superior data accuracy and timely reconciliation is due in part its global reach, according to the firm. The 200 employees at Envestnet’s office in Trivandrum, India, are not an outsourced operation in the sense that they are full-time Envestnet employees. They frequently rotate through U.S. offices to promote company cohesion and shared knowledge.

Based on an article in the 7/5/11 edition of RIABiz.com, Schwab Advisor Services and the RIA channel have surpassed revenues and asset levels where they were pre-2008 meltdown and the stage is set for a new era of growth, according to the 2011 RIA Benchmarking Study from the San Francisco-based asset custodian.  Released this morning, the study is the largest of its kind focusing exclusively on RIAs — representing the views of 820 firms it serves that manage more than $300 billion in combined assets, with 75 of those firms managing $1 billion or more.  The median participating firm has 186 clients, $212 million in assets under management — versus $176 million in 2007 — and $1.3 million in annual revenue, versus $1.22 million in 2008, the best previous performance.

Organic growth enabled most RIA firms to surpass 2007 asset levels despite markets that haven’t completely recovered. The typical firm delivered net positive asset flows of 4.3% annually during the last three years ending Dec. 31, 2010. Despite signs of rebounding, these results also show that the RIA business continues to suffer a hangover from the 2008-2009 market collapse, according to Philip Palaveev, Seattle-based president of Fusion Advisor Network. “Eighteen percent (operating margins) is less than is what is considered ideal, which is closer to 25%, and 4% growth is really disappointing.”

The Schwab study also shows that RIAs are very rapidly getting religious when it comes to outsourcing business tasks, with a more than 40% increase in outsourcing since only one year ago. Most likely to be outsourced are information technology (75% of survey respondents), payroll (67%), compliance (38%, up from 27% last year) and benefits (32%).

According to an article in IA Watch, “NEMO” (or the NASAA Electronic Examination Modules) is in the final phase of being tested.  The application is designed to assist state examiners while conducting adviser examinations.

Michael Huggs, the director of the Mississippi Secretary of State’s Securities and Charities Division, expects that every state will use this application.  According to the article, Huggs has taken the lead on the project and expects to demo the application during NASAA’s annual IA training in August before rolling out the free software at NASAA’s fall conference. States would then be able to download the software and begin using it on exams in January.

According to Huggs, the database contains virtually “every question you could possibly ask of your adviser.”  The database is spread across 18 sections (including books and records, financial information, trading, and adherence to the investment contract) and also contains hints to help the examiner during the review.

NASAA would be able to use certain data collected during examinations to determine overall examination trends and deficiencies.

In an article in the July 2011 editon of Financial Advisor Magazine, David Lawrence discusses the value to firms for using social media.  “For many advisors, the questions remain about how to integrate social media successfully into their practices. Can every financial practice benefit, for instance, from a Facebook page? Is Twitter really necessary? And perhaps most important, how can they be used efficiently without giving a financial advisor or staff extra work?

The answers lie in what sort of financial practice the advisor has, what the demographics of the clientele are and to what extent these tools can be efficiently integrated with the other technology already in use at the firm.

For example, if a financial advisory firm has created a Web site for its practice but never tried to discover who is visiting the site, what’s being looked at (through page counts) or how often people are returning, then the firm will have no idea whether what it has posted is resonating with clients or the public. Running statistics on a client base and/or surveying clients to determine their interests could be two ways to begin the process of understanding what content should be on the Web site. Once this is determined, adjusting the content to match these wants and/or needs can have a remarkable effect on the site statistics.

The same is true for a Facebook page. Though different in character from a traditional Web site, it is still a communication medium, and the content, posts and other information should be carefully reviewed to determine its effect on the visitors to that Facebook page. Without this sort of feedback, the advisor will have no clue about whether the effort of creating the Facebook page was successful.

And quite frankly, setting up such venues without consideration of an overall strategy for the firm is a mistake. Consideration should be given in any messaging medium to have clear, consistent messaging that reflects the firm’s long-term strategic goals. If your Web site suggests that you focus on wealth management and your Facebook page emphasizes your role as primarily an insurance firm, it is inconsistent messaging that will confuse visitors rather than clarify who you are and what you do.

Consistency in communication is the key. Web sites, social media sites, printed material, newspaper ads, radio advertising and other forms of communication with the public should have a consistent theme that reflects the message you wish to convey to that public. And while not all of these venues may be appropriate for advertising, all can be used for some form of messaging and communication.

Facebook can be used for more than just simple messaging. One of the many features of Facebook that can be leveraged in a practice is the creation of groups. Creating a group is easy and there are three levels, private, open and secret. With private, anyone can see the group, but only selected “friends” can post to it. (‘Friends’ could be your clients, for example.) Many advisors are using groups to create a kind of private blog for their clients. However, care must be taken not to violate the rules on what constitutes improper ads or misleading claims with such a feature.

Events can also be created. This is a feature in Facebook that could be used to announce fund-raising activities or to organize a client appreciation dinner or another event. The feature is free, and if your clients use the site, it is an inexpensive way to draw attention in a new and compelling way (photos can be added). Facebook is certainly not the only tool in the social media world. But it is currently very popular and well known. Thus, it is probably more likely to be used by your clients than a lesser-known site.

And yes, Facebook offers ads. Perhaps the most tempting aspect is the possibility of accessing the more than 600 million users. Yet this is the area that concerns the regulatory agencies the most. As with any communication medium, Facebook and other social media sites have many great potential benefits for financial advisors, but care must be taken in adopting its use in a financial practice to ensure that it complies with the rules and that it enhances the overall image of the firm. In the end, the use of social media should be integrated with all other communication forms in an efficient manner for it to complement an overall communication strategy.”