The Investment Adviser Association released its 2011 Compliance Benchmarking Survey, which indicates the increasing compliance burden borne by registered investment advisers.  The Survey of over 400 firms indicates that nearly a quarter of firms do not have a full time legal/compliance role and that 66% of CCOs (92.5% at firms with less than $1 Billion AUM) perform multiple functions.  Yet, firms have increased the amount of testing in areas such as advertising/marketing, data security, custody, personal trading, regulatory reporting, and insider trading and have added other topics to the compliance agenda including pay-to-play, risk management, and social networking.  Some other notable findings include: (a) 70% of firms detected compliance issues and the number of issues reported increased with the number of compliance personnel, (b) 53% of firms require pre-clearance of political contributions, (c) the CCO prepares the ADV Part 2 at 90% of firms, (d) 63% of firms have a whistleblower policy (e) 60% of firms conduct employee background checks and review e-mails, and (f) 64% of firms have adopted social networking policies and procedures.. 

OUR TAKE: Firms are clearly burdened with increasing compliance responsibilities, while CCOs often operate as one-person departments responsible for multiple functions.  We believe that overall compliance spending as a percentage of firm operating budgets will increase over time.  While we have not conducted a formal study, we believe that firms that spend less than 5% of operating revenues or 1 basis point of AUM on compliance are assuming significant regulatory risk.