NRS Compliance
Compensation Study 2011
National Regulatory Services (NRS)
is pleased to present our second Compliance
Compensation Study. Our first study, published in 2008, highlighted some interesting
statistics regarding the compensation of compliance professionals in the financial
services industry. In the intervening years, many events have impacted our industry
not the least of which were a collapse of world financial markets, a deep and ongoing
recession and ultimately passage of the Dodd-Frank Wall Street Reform and Consumer
Protection Act. At the time of this writing, the financial markets have recovered
somewhat, but a robust and widespread economic rebound is stalled and U.S.
unemployment is greater than 9%. Several European nations are experiencing significant
economic crises because sovereign debt has risen to unsustainable levels and there is
serious concern over the long-term U.S. national debt. Nonetheless, financial services
companies are faced with implementing hundreds of new regulations mandated by
Dodd-Frank and demand for compliance personnel and technology is increasing.
This study aims to determine how these events have impacted compensation for
compliance professionals and spending practices in the financial services market by
comparing current data with similar data from our 2008 survey.
We hope this report will prove beneficial as investment advisers and broker-dealers
begin budgeting for 2012.
Executive Summary
As in our 2008 report, the 2011 NRS Compliance Compensation Study provides a snapshot of a moment in time while allowing us to examine some underlying trends within the overall compliance professional ecosystem. Examining the data to identify some larger industry dynamics revealed some expected results, and a few surprises:
CCOs wear many hats.
Forty one percent of those respondents with the position of Chief Compliance Officer spent less than half of their time on compliance.
The industry is heavily incentivized.
Sixty percent of the respondents reported participating in some form of incentive compensation program.
Compensation for compliance professionals has stagnated.
Overall compensation has gone down for the compliance industry over the past three years due, presumably, to the global economic recession over the same period.
Spending on compliance has plateaued.
Nearly seventy-five percent of respondents reported their 2011 overall compliance budget was approximately the same as their budget in 2010.
Drilling down into the numbers, we find:
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Chief Compliance Officers are more highly compensated than other compliance positions. Consistent with the data in our 2008 study, it is still surprising to find that CCOs spend the least amount of their time performing compliance tasks.• Geographic location has a great impact on compensation, with New York City and Los Angeles reporting the highest average salaries.
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Since 2008, compensation for compliance professionals has not increased. While consistent with published reports regarding the overall U.S. labor market, we had expected that compliance professionals would be in high-demand given the increase in regulatory and legislative activity.•
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The NRS Investment Adviser Certified Compliance ProfessionalSM designation has a positive impact ondesignee compensation.
• A large percentage of respondents reported compensation packages that included substantial incentive components including monetary bonuses. Interestingly, stock options were less prevalent than in the past survey.
• Despite the passage of Dodd-Frank, respondents expect compliance spending to remain stable from 2010 to 2011, but the allocation of spending will be shifted to technology and away from education, consulting and outsourcing.
Profile of Respondents
Type of Firm
In the first half of 2011, NRS surveyed compliance professionals employed in the financial services industry, from Chief Compliance Officers to assistants. Fifty eight percent of the respondents characterized themselves as being employed by an investment adviser firm, 12% by a broker-dealer firm and 14% by a dually registered firm. The remaining respondents are composed of legal professionals, consultants and employees of other types of financial services firms.
Number of Employees
Of all respondents, 22% report having between 11 and 25 employees at their firm and 51% have 50 or fewer employees. Respondents that are employed by broker-dealers represent larger firms, with 31% reporting more than 250 employees. On the other hand, only 5% of those employed by investment adviser firms report more than 250 employees, 61% report having 25 or fewer employees and 39% report having 10 or fewer employees. Dually registered firms also tend to be larger with 44% of respondents reporting more than 100 employees.
Assets Under Management
For investment advisers, another common metric used to evaluate their size is their Assets Under Management (AUM). Sixteen percent of respondents reported AUM less than $100 million, while 35% reported greater than $100 million and less than $1 billion. Sixteen percent reported greater than $1 billion and less than $5 billion. Finally, 22% reported greater than $5 billion.
Number of Registered Representatives
Broker-dealers are often measured by the number of registered representatives they employ. Fully 47% of the respondents reported less than 50 registered representatives, while 27% reported more than 100 and less than 500, 5% between 500 and 1,000 representatives and 21% reported more than 1,000.
Job Titles
Respondents reported the following with regards to their job title:
• 66%, Chief Compliance Officer
• 6%, Vice President of Compliance
• 5%, Compliance Officer
• 11%, Compliance Manager
• 2%, Associate Compliance Manager
Compliance Compensation Summary
Overall, the annual salary of the respondents showed great variation, ranging from less than $40,000 to more than $250,000, with the median being approximately $100,000. Of those responding, 54% earn between $60,000 and $124,999, 31% reported earning between $125,000 and $249,999 and 4% reported earning over $250,000. These results are nearly identical to the results from 2008 and seem to indicate that there has been little growth in base compensation for compliance professionals in the past few years.
In addition to salary, 60% of the respondents participate in some form of incentive compensation program. While respondents with higher salaries were somewhat more likely to participate in an incentive compensation program, more than 50% of respondents in below median salary ranges also received some form of incentive compensation. The median total annual compensation of this group was approximately $125,000 and the data pointed to an average annual incentive package that was approximately $25,000. The data reveals that incentive compensation is generally between 20% and 30% of base compensation. Some respondents, though, received incentive compensation that was equal to 100% of their base compensation.
One interesting result from this survey is related to vacation benefits. Despite the fact that 81% of respondents had less than 10 years tenure in their current position, 74% of respondents reported that they are entitled to more than 20 vacation days per year.
Compliance Compensation and Job Titles
Not surprisingly, compensation of survey respondents generally increased based on the implied responsibility of their job title. More than half of respondents, 56%, reported holding the title of Chief Compliance Officer, 6% reported being a Vice President of Compliance, 5% reported being a Compliance Officer and 11% reported being a Compliance Manager. Compensation, not including incentives varied among the job titles.
The average compensation for Chief Compliance Officers is $125,000. Thirty one percent of CCOs earn between $125,000 and $174,999 and an additional 22% earn $175,000 or more.
The title, Vice President of Compliance, appears to be one used at large institutions with more than $10 billion in AUM or more than 500 registered representatives and, as such, respondents that hold this title earn an average of $169,000. Those holding the titles Compliance Officer or Compliance Manager earn, on average, $89,000. Twenty five percent make more than $105,000 and 35% make less than $75,000.
CCOs Wear Many Hats
Only 33% of all respondents reported that 90% of their time is spent on compliance functions. Conversely, 41% spend less than 50% of their time on compliance. More interesting however is the role of the CCO. Of those that hold the Chief Compliance Officer title, only 25% reported spending over 90% of their time on compliance (down from 30% in 2008) Fifty five percent of those identified as Compliance Officer or Compliance Manager spend more than 90% of their time on compliance.
Average Time Spent on Compliance and Average Compensation by Title
Overall, our study shows CCOs spend the least amount of time on direct compliance responsibilities, while Compliance Officers and Compliance Managers spend the most amount of their time on compliance processes and tasks. While we can make the assumption that senior level positions are more involved with other business matters, we believe this is still counter to what the regulators had planned with the implementation of the SEC’s Compliance Programs Rule (206(4)-7) or FINRA Rule 3130. While these regulations may have been implemented so that those who hold the Chief Compliance Officer title spend the majority of their time on compliance, the reality in the industry is that there are still a majority of CCOs who continue to wear many hats and split their roles among other functions. Since 2008, this trend has worsened and CCOs spend even less time on compliance. It is also interesting to note that Chief Compliance Officer compensation varies little among the investment adviser and broker-dealer industry sectors while their time spent on compliance varies greatly. CCOs of broker-dealer firms spend the most amount of time on compliance with an average salary of approximately $123,000. CCOs of investment advisory firms spend the least amount of time on compliance and have an average salary of approximately $122,000.
Average Time Spent on Compliance and Average Compensation by Business Type
TitleAverage Time Spent
On Compliance Average Base Salary Average Total Compensation
2008 2011 2008 2011 2008 2011 Chief Compliance Officer 60.0% 58.6% $135,950 $124,612 $151,875 $159,050 VP, Compliance 69.3% 86.2% $110,205 $148,125 $141,803 $181,070 Compliance Officer 78.9% 75.0% $87,414 $85,000 $100,994 $108,750 Compliance Manager 79.7% 84.3% $85,568 $89,821 $101,363 $102,500 Business Type
Average Time Spent
On Compliance Average Base Salary
Average Total Compensation
% Participation in an Incentive Program
Compliance Experience
The survey results indicate that experience is a strong driver to compensation. Respondents reported
compensation increased steadily after 5 year’s experience. Compensation increases from an average of $87,200 for an individual with 5 to 7 years of experience to $116,100 with 8 to 10 years, $124,400 with 11 to 15 years and $168,700 for those with more than 20 year’s experience.
The data for those with less than 7 year’s experience is somewhat counterintuitive. Those with less than one year had an average salary of $100,500. While those with 2 to 4 years experience were paid, on average, $98,750 and those with 5 to 7 years, $87,200. This negative trend for salaries may be explained by the fact that 37% of those responding indicated that they have been working in the compliance field for 5 to 10 years and, at the same time, 45% percent have been working at the same firm for 5 to 10 years. From this, we can conclude that those newly hired into the profession are commanding higher salaries than those who have been with their firms for a while.
Educational Background
As expected, and a reversal of the results from 2008, a respondent’s educational background played a significant role in determining overall compensation. Forty-two percent of the respondents reported that an undergraduate degree was the highest level of completed education, 35% reported having a graduate degree and 10% reported having a post-graduate degree. The average salary of those respondents who reported having attained high school level education was $88,300. Those with an undergraduate degree earned an average of $104,100 and a graduate degree increased the average to $127,000. Those who received a post-graduate degree (54% of whom held the JD designation) were rewarded with an average salary of $170,000.
Average Total Compensation by Business Type and Educational Background
The majority of respondents (51%) reported having attained no more education than an undergraduate degree. Fifty two percent of Chief Compliance Officers reported having earned an undergraduate degree, 34% had earned a graduate degree and 12% had earned a post-graduate degree. The data further reflects that those holding the title of Vice President of Compliance reported the largest percentage of graduate degrees at 63%, and 38% earned an undergraduate degree. Twenty percent of Compliance Officers and Compliance Managers reported
Business Type
Highest Attained Level of Education
High School Undergraduate Graduate Post-Graduate
2008 2011 2008 2011 2008 2011 2008 2011
Investment Adviser $84,062 $50,050 $128,643 $106,354 $147,567 $155,161 $169,321 $167,500 Broker-Dealer $85,625 $106,250 $105,930 $108,000 $132,237 $84,375 $160,000 $193,750 Dually Registered $106,389 $98,750 $111,188 $115,833 $141,923 $156,667 $133,906 $163,125 All Business Types $93,636 $97,954 $123,400 $163,125 $145,000 $149,667 $161,578 $183,269
Professional Designations
In general, professional designations had little effect on reported compensation, even though many of the respondents hold more than one designation. The most common designations held by respondents included Investment Adviser Certified Compliance ProfessionalSM (IACCP) (23%), Certified Financial Planner (CFP) (20%),
Certified Public Accountant (CPA) (18%) and Juris Doctorate (JD) (15%). Since the CFP and CPA designations are unrelated to compliance, the prevalence of these designations is consistent with the conclusion that many compliance professionals fill additional roles, especially at investment adviser firms.
The previously mentioned data of education and experience are among the strongest drivers of compensation. Nonetheless, those that hold some professional designations tend to earn more. Those holding the four most common designations—IACCP, CFP, CPA and JD—earn an average of $135,800, $90,800, $127,100 and $190,750, respectively. Understandably and expectedly, attorneys are the highest earners in our study. As a co-sponsor of the IACCP designation, NRS is proud that holders of that designation appear to have an earning advantage over their peers.
Average Compenation by Professional Designation
Location
Location, like in the 2008 survey, was probably the strongest driver of compensation. New York City and Los Angeles topped the list with their respondents reporting average salaries greater than $150,000. Atlanta, Boston and Chicago based respondents made an average of $125,000. Those from San Francisco and the northwestern states made an average of $112,000.
Respondents in Kansas City, MO, St. Louis, MO, Washington, DC and the Ohio/Western Pennsylvania region all reported average salaries of $100,000, similar to the overall average.
Philadelphia based respondents surprisingly reported a below average salary level of $92,000. Many smaller locales also combined to report a lower average salary of $80,700. These locations included Lincoln, Kalamazoo, Memphis, Phoenix, Omaha, Hartford, Indianapolis, Milwaukee, Tulsa and Oklahoma City.
Designation Average Total Compensation
Percent with a Graduate or Post-Graduate Degree 2008 2011 2008 2011 JD $175,824 $213,750 100.0% 100.0% CPA $177,731 $160,000 48.5% 61.5% IACCP $129,405 $146,500 31.7% 26.7% CFP $155,913 $106,875 59.2% 50.1% CRCP $155,088 $110,000 35.3% 19.2%
Overall Compliance Spending
In this year’s survey, questions were added regarding overall compliance budgets for both 2010 and 2011. The average overall compliance budget for 2010 was between $50,000 and $75,000 for the firms who responded to the survey. These budgets allocated 30% to technology/software solutions, 27.5% to education/training, 32.8% to consulting services and 13.3% to outsourcing services.
Surprisingly, 74.2% of the respondents reported that their 2011 budget would be approximately the same as the 2010 budget. The only area of spending that more respondents expected to increase (14%) rather than decrease (7.5%) was the technology/software solutions category. Education and training, on the other hand, was expected to decrease by 11.8% of respondents and to increase by only 6.4%.
Conclusion
This Compliance Compensation Study provides a range of critical insights into industry change over the past three years and trends of compliance compensation and spending in the financial services industry. First and foremost, the experience and education of compliance professionals combined with their location are the factors that matter most in determining compensation levels. Large concentrations of firms competing for a scarce resource coupled with a higher cost of living in those areas are the likely reasons for this trend.
Finally, despite the fact that survey respondents do not expect a significant increase in compliance spending in 2011, the implementation of Dodd-Frank and other regulatory initiatives will drive increased spending. In addition, with the repeal of the private fund exemption from registration as an investment adviser will serve to increase demand for qualified and experienced Chief Compliance Officers and that will most certainly be reflected in all compliance compensation when this report is revisited in the future.
About NRS
National Regulatory Services (NRS) is the nation’s leader in compliance and registration products and services for investment advisers, broker-dealers, hedge funds, investment companies and insurance institutions. NRS has the practical expertise, proven capability and unparalleled reach to deliver integrated and effective compliance solutions to a wide
