Advisors look to start mutual funds for a myriad of really good reasons, such as new distribution opportunities, an increase in operational efficiencies, and reduced transaction costs, among many others. However, if you’re an advisor interested in starting a mutual fund, you should be aware that the financial industry is highly regulated, and that compliance is a key element for the success of your business.
The U.S. Securities and Exchange Commission (SEC) requires all investment advisers advising a mutual fund to be registered with the SEC. As part of this registration, the adviser must have a compliance program and a Chief Compliance Officer (CCO) to administer it. The CCO is responsible for a critical firm function, and the SEC looks to him or her as a senior member of your management team.
A major component of your compliance program is the creation and maintenance of a comprehensive compliance policies and procedures manual to provide guidance to the firm and its personnel. This manual must be uniquely customized to your firm’s operations, and provide guidance to your employees on the key aspects of your business including a code of ethics, trade execution, advertising and marketing, anti-money laundering, recordkeeping, regulatory reporting, custody, cybersecurity, disaster recovery, and more.
This may all sound overwhelming, but help is available. Various consulting firms, including Northern Lights Compliance Services, LLC, are available to assist in developing a custom compliance manual and code of ethics to meet the needs of your advisory firm. These firms can also provide guidance and assistance to your CCO to ensure compliance with industry rules and regulations, as well as compliance with the prospectus of your mutual fund once your fund is operational.
Good luck in creating your new registered product and please contact us at any time if we can be of assistance.