Compliance is not a foreign concept in the investment advisory world. In fact, maintaining regulatory compliance is one of the most essential components in running a successful advisory firm. However, compliance obligations do not stop with the Securities and Exchange Commission. Having compliant protocols in place regarding personnel issues is also vital.
There are numerous laws on both the federal and state levels governing employment matters. Accordingly, human resources management should be incorporated into every investment advisory firm's compliance regiment. To address these issues, I spoke with my colleague, Tara Speer, who assists our clients with employment-related matters.
Tara advised that there are areas where advisory firms are particularly vulnerable due to the nature of the work they perform and the way they are structured. For example, background checks are commonly performed on new and existing firm employees but compliance with the Fair Credit Reporting Act (FCRA) often is overlooked, and many firms may not even know they have an obligation to comply with the FCRA when running a background check on an employee. Failure to obtain informed consent in a standalone document and failure to provide required notices are common place occurrences that could land a firm in hot water.
Inconsistency among firm agreements and policies is another area that often goes unnoticed, Tara added. It is not uncommon for firms to have advisors who join a firm, sign some combination of an offer letter, employment agreement, restrictive covenant agreement or confidentiality agreement. However, problems can arise down the road when these documents have conflicting terms. Therefore, it is prudent for firm management to decide what type of onboarding documents it wants to use, have the content reviewed for consistency, and ensure any firm handbook or policies do not conflict with these documents.
Multi-Jurisdictional Issues Firms that operate in multiple jurisdictions face their own unique set of challenges. As many facets of employment law are regulated on the state level, these firms must take special care to familiarize themselves with the varying laws in those states (and sometimes on a local level as well).
A standard firm employment agreement or restrictive covenant agreement with a non-compete provision may be enforceable in one state but may not be enforceable in another. Mandatory sick leave laws may have been enacted in one jurisdiction but another jurisdiction may have no regulation in place in that area. Pay day laws also differ by state. Whereas one state may require that a terminated employee be paid at the time of termination, another may permit payment on the next regular pay day or may require payment within a set number of days.
