Mutual Fund Chief Compliance Officer Compensation

Transcription

1 Mutual Fund Chief Compliance Officer Compensation THE 2016 MPI ANNUAL SURVEY November 8, 2016 (First released June 28, 2016)

2 Today s Speakers Susan Wyderko President & CEO, Mutual Fund Directors Forum (Moderator) Meyrick Payne Sr. Partner, Management Practice Jay Keeshan Partner, Management Practice 2

3 Agenda Introduction/Survey Methodology Participant Details Executive Summary/Trends/Highlights CCO Compensation/Structure Other Benefits Organizational Practices 3

4 Survey Methodology 11 th Annual Survey- Since 2006 Data collection in spring, delivered in June Mailed/ ed to database, distributed at ICI conference Full confidentiality assured 66 participants in 2015 Representative sample 4

5 Participant Details Participating CCOs represented a total of $2.5 trillion in assets under management. All regions of the U.S. were represented in the survey. West 18% Northwest 5% Midwest 31% Northeast * 11% Boston 6% New York 15% Southwest 9% Southeast 5% * excluding Boston/NYC 5

6 Participant Details 100% of participants are CCOs who are employed full time. 64% serve as CCO to both the funds and the advisor. The average age was 49. Respondents had the following qualifications: Complex assets were represented as follows: 18% were CPAs 24% $75 Billion + 39% were lawyers 24% have MBAs 51% have some form of securities licensing, most common were the Series 6, 7, 24, 26, and 65 13% have SEC/other regulatory experience 18% $15 Billion $75 Billion 29% $4 Billion $15 Billion 29% <$4 Billion 6

7 Participant Details Independent contractors and fund only CCOs were in the minority; the majority of CCOs were full-time, salaried employees and performed duties for advisors, as well as the funds. 37% 3% 97% 64% Independent Contractors Salaried Employees Fund Only Fund & Advisor 7

8 Survey Summary / Trends After holding relatively flat through the financial crisis, many CCOs have now seen steady (if modest) increases over the past few years. In this year s study, the 66 participants received average total compensation of $400,148, versus $389,402 last year. This represents a gain of 2.8%, however this reflects slightly different groups of participants. A subset of the survey participants, which includes 46 participant CCOs for whom data exists for two years (2014 and 2015), saw an increase in total compensation of 5.7% over the previous year. Bonuses for CCOs typically range from 25% to 100% percent of base pay. While some of the highest paid CCOs received as much as 200% or more before the market meltdown, that number has been decreasing and in 2015 the average bonus for large-fund CCOs was 66% of their base pay. 8

9 SEC Comments Chief of Staff Buddy Donohue recently commented during a speech at a compliance conference in Washington, D.C. In the future, I envision that the necessary expertise for compliance will consist of a far broader set of subjects, including expertise in technology, operations, market, risk, and auditing, to name a few. Even now, compliance personnel need to have a solid understanding of these areas, but I envision the role becoming even more demanding such that a CCO will truly need to be a jack of all trades with access to a wide array of skillsets. SEC Chief of Staff Andrew Donohue at the National Society of Compliance Professionals National Conference - Washington, DC, October 19,

10 2004 CCO Job Description Mutual Fund and Investment Adviser Chief Compliance Officer Responsibilities Oversee all compliance related activities, including: Manage compliance officers involved in day-to-day issues Establish and ongoing management of a compliance program that is reasonably designed to prevent violations of federal securities laws Establish policies and procedures to ensure the firm in is compliance with all applicable laws, rules and regulations and the firm s internal procedures Lead compliance activities such as documentation, reporting, audits, controls, inquiries, training, continuing education, and communications programs Keep abreast of regulatory updates, industry trends and best practices Proactively lead changes and initiatives to maintain compliance standards Interface with senior management, attorneys, fund board members, sales, and operations employees to address compliance issues and build support for compliance programs Provide leadership, direction and coaching for the compliance staff to help develop additional skills Knowledge Required Thorough knowledge of the mutual funds industry, from a product, corporate governance, compliance and administrative perspective Broad exposure to key functional areas of product development, pricing, distribution, and marketing communications Management experience Strong knowledge of the Investment Advisers Act and Investment Company Act Bachelor's degree required, JD or other advanced degree preferred Source: Katherine Stoner/SunAmerica Funds & Karrie McMillan/Patomak Partners; Where to Draw the Line: A CCO s Responsibility for Conflicts of Interest and Risk Issues, May

11 2016 CCO Job Description Mutual Fund and Investment Adviser Chief Compliance Officer Responsibilities Manage, lead and supervise compliance staff in a way that will promote efficiency, creative thinking and teamwork in a deadline driven business unit Develop systems and procedures to minimize the firm s risk exposures while balancing business concerns and regulatory requirements Follow guidance and frameworks established by applicable state and federal regulatory agencies, including but not limited to, the OCC, FRB, CFPB, CFTC, NFA, DOL, FINRA and SEC Conduct compliance risk assessments and manage monitoring in accordance with regulatory expectations and best practices Identify compliance controls and develop strategies to ensure appropriate testing of controls Support execution of compliance testing programs to evaluate the effectiveness of the business practices in meeting regulatory compliance requirements Test, plan, coordinate, perform and document corporate-wide compliance monitoring for applicable securities compliance laws and regulations to ensure adequate compliance with laws and regulations Provide technical advice on more complicated compliance issues Escalate identified issues to Management Monitor remediation activities of identified issues and escalate past-due items Assist in the development of new testing based on changes to existing products, services, or business process or based on changes to existing laws or regulations Perform special projects or testing, as necessary, over a broad range of activity, including complex research, due diligence reviews, or other areas Assist in coordinating with Internal Audit in providing compliance testing program results in connection with their periodic audits Prepare annual budgets, periodically review income and expense summaries and compare to budgeted forecast Prepare written compliance reports to Management, the Corporate Board and the Fund Board Keep abreast of regulatory updates, industry trends and best practices Proactively lead changes and initiatives to maintain compliance standards Source: Katherine Stoner/SunAmerica Funds & Karrie McMillan/Patomak Partners; Where to Draw the Line: A CCO s Responsibility for Conflicts of Interest and Risk Issues, May

12 2016 CCO Job Description (cont d) Knowledge Required Thorough knowledge of the mutual funds industry, from a product, corporate governance, compliance and administrative perspective Broad exposure to key functional areas of product development, pricing, distribution, and marketing communications In-depth knowledge of Federal Securities regulations, e.g., the Investment Company Act of 1940, the Investment Advisers Act of 1940, Securities Exchange Act of 1934, FINRA and Municipal Securities Rulemaking Board, AML and Privacy rules In-depth knowledge of fiduciary regulations: 12 CFR 9, 12 CFR 12, Trust Indenture Act, ERISA, Transfer Agent Rules Comprehensive knowledge of regulatory examination procedures used to evaluate compliance federal laws and regulations Excellent analytical ability and organizational skills Ability to collect and evaluate financial, transactional or other data to determine trends Excellent oral and written communication skills and ability to present to senior management Excellent leadership ability and team building skills Ability to build effective partnerships with multiple stakeholders At least ten years investment advisory compliance, having managed other professionals as a Chief Compliance Officer or as the principal Deputy in a larger organization Educational credentials should include a bachelor s degree in business, economics or finance Professional licenses and graduate degrees are a plus Source: Katherine Stoner/SunAmerica Funds & Karrie McMillan/Patomak Partners; Where to Draw the Line: A CCO s Responsibility for Conflicts of Interest and Risk Issues, May

13 Total Compensation 13

14 Range of Compensation The range of CCO compensation for the reporting fund families was very wide and depended on many variables. Geographic location, number of funds and portfolios, retail or institutional distribution, number of sub-advisers, and mix of insurance related products were among the numerous variables affecting pay levels. Many CCOs had been long term employees of the management company, or had many years of experience at another fund company. As a result, CCO compensation is often correlated with age or length of experience. 14

15 Bonus as a Factor in Total Compensation While base salaries are relatively stable, bonuses are a significant factor in total compensation. The proportion of bonus as a percentage of total pay often grows with the size of the complex. CCOs at the largest complexes $75 billion and above received higher percentage bonuses, typically about 50% to 100% of base pay. $600,000 $500,000 $400,000 Average CCO Compensation $300,000 $200,000 Bonus Base $100,000 $0 $0 to $4bn $4bn to $15bn $15bn-$75bn Above $75bn 15

16 CCO Total Compensation: Assets up to $4 Billion CCO Total Compensation (AUM < $4bn) The average for this group was $299,818 with a range of $152,845 to $446,791 within one standard deviation. The full range was from roughly $110,000 to $650,000. Bonuses for this group averaged approximately 25% of base pay and 19% of total pay. $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 16

17 CCO Total Compensation: Assets $4 Billion to $15 Billion The average for this group was $329,764 with a range of $199,990 to $459,538 within one standard deviation. The full range was from roughly $150,000 to $625,000. Bonuses for this group averaged approximately 45% of base pay and 28% of total pay. $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 CCO Total Compensation (AUM $4bn - $15bn) 17

18 CCO Total Compensation: Assets $15 Billion to $75 Billion The average for this group was $476,042 with a range of $253,479 to $698,604 within one standard deviation. The full range was from roughly $250,000 to $1,000,000. Bonuses for this group averaged approximately 54% of base pay and 28% of total pay. $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 CCO Total Compensation (AUM $15bn - $75bn) 18

19 CCO Total Compensation: Assets $75 Billion + CCO Total Compensation (AUM > $75bn) The average for this group was $564,701 with a range of $365,636 to $763,765 within one standard deviation. The full range was from roughly $250,000 to $1,000,000. Bonuses for this group averaged approximately 66% of base pay and 33% of total pay. $1,000,000 $900,000 $800,000 $700,000 $600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0 19

20 Influence on Bonus The vast majority of full-time CCOs (93%) receive a bonus as a part of their total compensation. Management companies and increasingly fund boards each have a strong influence in setting bonuses. Factors Influencing Bonus for Full-Time CCOs % 79% 68% 70% 70% 58% 96% 91% 18% 9% Fund Performance Corporate Performance CCO Workplan Board Discretion Management Discretion 20

21 Compensation Comparisons CCOs with different duties and backgrounds on average receive varying levels of compensation. Average Total Compensation $400,148 $333,554 $440,640 $401,749 $378,225 $366,209 $364,143 Participant Average Fund-only CCOs Advisor & Fund CCOs Lawyers CPAs Non Lawyer/CPA SEC Exp. 21

22 Other Benefits 22

23 Employee Benefits The CCO position benefits are typical for an officer of his/her salary grade (Full-time salaried employees). Defined Contrib. Plan/401K Defined Benefit Pension Deferred Comp. Perqs. For Equiv. Pay Grade Retirement Health Benefits Current Health Benefits Vacation for Eq. Pay Grade Stock Options Restricted Stock 54% 26% 16% 34% 34% 46% 33% 32% 20% 25% 15% 29% 40% 79% % 94% 92% 93% 23

24 Employee Benefits Restricted stock and options are most common at larger fund complexes. Other CCO position benefits are typical for an officer of his/her salary grade (Full-time salaried employees). Stock Options 15% Restricted Stock 40% Def. Contrib. Plan/401K Match 54% Defined Benefit Pension 16% Deferred Comp. Perqs. For Equiv. Pay Grade 34% 33% Retirement Health Benefits 20% Current Health Benefits Vacation for Equiv. Pay Grade 94% 93% 24

25 Organizational Practices 25

26 Additional Duties The majority of participant CCOs perform other functions for the funds, management, or both. Legal Support Risk Management Support 51% 45% 54% 69% Internal Audit Global Responsibilities 32% 32% 37% Board Support 72% 80% 26

27 CCO Internal Reporting 35% of CCOs report internally to the CEO; 26% to their general counsel. CEO 35% General Counsel/CLO 26% Advisor/Parent/Global CCO 22% COO 7% CFO 3% President 7% 27

28 Compensation Source There has been a growing trend toward sharing the cost of the CCO between the funds and the manager. This year 51% reported some or all of their compensation being paid by the funds. CCO Compensation Split How Much the Funds Contribute (if they do contribute) 15% 18% 49% 51% 15% 52% Fund Pays All or Part Advisor Pays 100% Up to 25% 25% to 50% 51% to 75% 75% to 100% 28

29 Management Practice Inc. 216 West Hill Road, Suite 200 Stamford, CT Phone: (203) Jay Keeshan Meyrick Payne 29