Wall Street Journal: Hire Compliance Now, or Get Fined Later

This article originally published in the Wall Street Journal : The Morning Risk Report

The boom in the hiring of chief compliance officers and mid-level compliance staff is driven by not only an explosion of rules and regulations but by the fear of becoming the next poster child for wrongdoing, says an executive at a national recruitment firm specializing in hiring of compliance officers and legal personnel.

Rules and regulations such as the Volcker Rule and Dodd-Frank Act, which marks its fourth anniversary later this month, have served as a wake-up call to banks, hedge funds and private equity firms that it’s better to spend money on compliance than to get fined millions or billions of dollars, then suffer additional losses as investors pull money, said Jason Wachtel, managing partner of recruitment firm JW Michaels & Co. His firm has increased its staff from two people to 50 since the financial crisis hit in 2008. “If you’re a hedge fund or private equity firm with more than $500 million under management, you’re looking for really talented people for compliance and legal,” he said. “Most firms have hired their chief compliance officer in the last two years and now are further building out their compliance infrastructure. They need more hands on deck.”

As the size of fines increases, and more rules get enacted, Mr. Wachtel said there is no end in sight to the number of compliance people needed to make sure firms stay out of regulatory hot water. Beyond regulatory worries, he said it’s become a strong selling point for firms to show investors they are taking compliance seriously. “If an investor is going to drop $50 million or $100 million and doesn’t think you have a strong compliance program they will be hesitant to invest,” he said. “Since 2008 and Madoff, investors are looking more closely at what the compliance program looks like. They want to be sure they are not investing in a fund that looks like it could be the next big Ponzi scheme.” Firms are making hundreds of millions of dollars a year, and see it as a wise investment to spend $500,000 or $600,000 to help prevent them from getting in trouble. “If I’ve got $5 billion under management, what is a couple hundred thousand dollars to hire a good CCO to ensure I keep making $50 million a year?” Mr. Wachtel asked.