Getting Compliant

Compliance Takes Time

Regulatory compliance in the financial services industry is serious business. The time and labor commitments to track, record, test, fix and report on regulatory issues is enormous.

For me personally, it has been a year long journey of trying to understand the compliance nuisances that could lead to deficiencies, then figuring out solutions that are thorough, cost effective, and in certain cases, automated.

To Boldly Go Where No Policies and Procedures Manual Has Gone Before

Compliance automation is yet another example of where cloud-based, collaborative technologies inspire efficiency innovation in my humble opinion. We developed a cloud-based, compliance triangle framework, consisting of the Policies and Procedure Manual,  a compliance calendar and a compliance checklist (see image below) to help us run our compliance operations.

Koch Capital’s Policies and Procedures Manual (PPM) is now digital, residing in the ether of Google Documents, and shared with my compliance attorney, thus making it easy to update and access from any Internet-enabled device. Similar to a company’s Articles of Organization, the PPM is specific to advisory firms and guides them on how to run their investment and client practices.

Next, the compliance calendar instructs the advisory firm’s Chief Compliance Officer (CCO) and associated staff on exactly what tasks need to be taken and when to do them. Again, by utilizing a cloud-based calendar solution, the CCO can easily assign compliance tasks to the appropriate resource regardless of physical location and coordinate all activities from his browser.

Finally, the compliance checklist helps the firm’s compliance personnel to document their activities and mitigate the chance of overlooking a critical todo lost in the myriad of time-sensitive tasks. Koch Capital’s compliance checklist is available on the Resource page of our website if interested in seeing the various compliance tasks performed in any given month, quarter and year.     

Source: Koch Capital

What I’m most proud of with our compliance triangle framework is not the time savings nor the smaller attorney bills, but rather the new operational innovations these activities have spawned in related areas of our advisory practice. For example, our Trade Order Memorandum (a.k.a. the trade blotter), which tracks all security trades throughout the firm and across all client accounts, is now not only digitally accessible from the web, but also performs value add services such as generating trade tickets, pulling in current security price data and even assisting with best trade execution testing to ensure clients get fair prices on their buy or sell orders.

Known Unknowns and Unknown Unknowns

To quote a former Defense Secretary, not knowing all the compliance unknowns was keeping me up at night. Koch Capital doesn’t have a full-time compliance department managing this stuff. Like other small firms, we chose to hire a dedicated compliance law firm. But unlike other legal-advisory relationships, we required our compliance firm to work with us virtually using the collaborative Google Apps tool set.

Koch Capital is still not 100% compliant; no advisory firm is ever 100% compliant, in my opinion, given the ever changing regulatory landscape. But at least, Koch Capital has the collaborative compliance framework in place to tackle the known compliance deficiencies, and the procedures to respond to the compliance unknowns.

About Jim Koch

Jim Koch is the Founder and Principal of Koch Capital Management, an independent State Registered Investment Advisor (RIA) in the San Francisco Bay Area. He specializes in providing customized financial solutions to individuals, families, trusts and business entities so they are better able to achieve their goals. Jim sees himself as an “implementer” of financial innovation, using state-of-the-art technology to provide practical investment management and retirement planning solutions for clients.

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