Cutting his teeth at Salomon Bros., as a FINRA examiner and then UBS fixed-income compliance guy, Amster brings a portfolio of perspectives to the roiling sector -- but don't call him a consultant

October 31, 2016 — 6:27 PM UTC by Sarah O’Brien

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Things are about to get real for compliance veteran David Amster as he takes the field in a war being fought on many fronts at a national compliance consultancy.

In his realm, regulatory sanctions suck hundreds of millions of dollars annually in fines from constituents, compliance officers complain of burnout, and new DOL rules will soon - very soon -- redefine fiduciary duty when it comes to retirement plans.

April 7, 2017 -- that's the day that the Labor Department's landmark rule begin to kick in. See: Which three of DOL's new 401(k) rules represent the biggest land mines for financial advisors and plan sponsors. At that point, any financial advisor managing retirement money will have to put clients’ interests before their own. Translation for a large swath of advisors: Bye-bye commissions. 

And that’s on top of an existing labyrinthine regulatory schematic as companies try to balance demands from multiple regulatory agencies with their core purpose for existing. See: The sorry truth about the SEC's plan to crack down on bad stockbrokers by putting RIAs in a vise

Amster seems up for the task, bringing more than two decades of experience to New York-based Compliance Risk Concepts LLC, where he started last month as principal and head of its fund and dealer advisory practice. In his previous job, Amster provided compliance oversight for the now-defunct money manager, CRT Capital Group LLC in Stamford, Conn. (CRT ceased operations in September due to unsustainable revenue.)

RIABiz recently chatted with Amster about his new role as a consultant (not, as we'll learn, his favorite term), helping firms navigate the shifting regulatory environment and the business of compliance advice.

RIABiz: In your new position as a consultant to the investment industry, how’s it feel to be on the outside looking in?

Amster: I don’t really see myself as being on the outside looking in. In the past, I may have worked for a single firm but I still had a constituency for whom I had to produce. I just have a broader constituency now. I also don’t see myself as a traditional consultant. When I hear that word, I think of stale, one-size-fits-all prescriptions and reports that ultimately collect dust on the client’s shelf – usually because the recommendations in those reports often have little practical value. Clients who seek regulatory advice aren’t participating in academic or theoretical exercises. CRC’s professionals specialize in pragmatic, tailored guidance that considers each client’s unique business profile and empowers clients to better focus on their core businesses.

RIABiz: What is your focus and who are your clients?

Amster: My practice generally focuses on investment advisors who either manage funds or have discretion over separate accounts and broker-dealers who offer one or more of the four classic core verticals: sales, trading, investment banking/capital markets and research.

RIABiz: How does your past experience with both money managers and FINRA help in your new position?

Amster: I’m lucky enough to have worked for firms that ran the gamut in size and scope and, as a result, I’ve grappled with virtually all of the regulatory issues – both complex and not so complex – that investment advisors and broker-dealers face every day.

I began my compliance career as a securities examiner with FINRA where I conducted on-site reviews of member firms that collectively offered the full spectrum of securities products. See: FINRA shifts an unwelcome spotlight away from itself -- by training it on the brokers it oversees. My next stop was at UBS, a bulge bracket, foreign-owned investment bank, as an associate director in their fixed income capital markets compliance group where I had primary oversight responsibility for the firm’s primary dealership, rates and repo desks.

My last stop before CRC was with CRT Capital Group where I served for more than 15 years as chief compliance officer of their U.S. broker-dealer unit, CRT’s FCA-authorized U.K.-based dealer affiliate and CRT’s domestic registered investment advisory affiliate, Harbor Drive Asset Management.

But when it comes to serving CRC’s clients, perhaps my most valuable experience came during my very first job at Salomon Brothers, the legendary investment bank of “Liar’s Poker” fame, where I spent five years first learning the business from the sales and trading perspective. Looking back, my trading floor experience materially influenced and favorably informed my compliance approach by teaching me to also see each regulatory challenge from the standpoint of the producers who ultimately drive the financial services industry. How a Chicago RIA grew to more than $700 million by carving out a client niche of wirehouse execs

RIABiz: Do you anticipate the consulting space getting more crowded as compliance risk continues to be more challenging as regulatory requirements increase? And how will you set yourself apart from competitors?

Amster: The demand for compliance advice has steadily grown ever since the financial crisis and we’re seeing a significant acceleration of that demand. More than ever, financial institutions recognize that good compliance is good business and that a gold-plated reputation can be lost in the blink of an eye. Given that supply always follows where demand exists, I suspect that the compliance advisory space will become more and more crowded. The leaders in this space, however, will be those who equally recognize and appreciate the client’s commercial focus and offer solutions that go beyond reciting the black letter of the rules. CRC’s competitive advantage is its strength at comfortably balancing a client’s commercial interests and its critical need to withstand regulatory scrutiny. 

RIABiz: What types of regulatory challenges do you anticipate the DOL fiduciary rule creating that companies will need help with? How significantly is the rule going to change the industry?

Amster: The fiduciary rule will have the greatest impact on broker-dealers. For the very first time, B-Ds will have a legal and ethical obligation to put the interests of certain clients ahead of their own. It’s likely that investment advisors are better positioned to adapt given that, under the law, they have been required to operate as fiduciaries of their clients for many years. Both IAs and B-Ds, however, will face significant challenges. See: DOL rule still has feet tangled in the struggle to define difference between 'suitability' and 'fiduciary'

For instance, the rule’s impartial conduct standards dictate that compensation for advice given to retirement investors must be “reasonable.”  The DOL, though, does not define that term. As of right now, one can only speculate as to how the DOL or other regulators might ultimately enforce that provision. Historically, different products within the same product type category have been subject to various commission levels. The rule will make it increasingly difficult for firms to justify that those different payout levels are consistent with acting in the client’s best interest and will make it more difficult for firms to aggressively market their own proprietary products. Because of that, advisors and brokers will likely end up moving away from commission-based compensation and migrating towards fee-based structures. See: Using DOL as cover, Bank of America cuts the Merrill Lynch bull as it adds a robo, stops paying brokers to stick around and kicks John Thiel upstairs

RIABiz: How does the sales and marketing side of clients’ business affect what you do? Are compliance officers communicating effectively with the sales side?

Amster: Whether it’s sales or any other front-office function, it’s critical for compliance executives to get buy-in from the businesspeople. For instance, an advisor like me could easily develop policies and procedures that a regulator would consider bulletproof. But that effort would be meaningless if they were completely impractical for businesspeople to actually execute. If compliance professionals are capable of “speaking the language” of the businesspeople we support, we’re much more likely to find ways to thread the needle between what sufficiently protects the firm and what is actually feasible. It’s an art form. 

RIABiz: What other compliance risk issues are out there that might not be getting enough attention from investment managers and the like?

Amster: While firms necessarily have to focus on granular topics of the day like the fiduciary rule, they also need to be careful that those priorities don’t come at the expense of paying less attention to bigger-picture issues like encouraging employees to make good decisions and to come forward with potential problems. The recent Wells Fargo debacle [involving illegal sales practices and the resulting resignation of CEO John Stumpf] illustrates the fundamental danger of not effectively instilling a strong culture of compliance. See: FiNet welcomes six wirehouse defectors at the apex of a withering Wells Fargo bank scandal that 'has legs'. When dozens of employees are involved in violative activities for an extended period of time and even people of good conscience are too intimidated to raise their voices, there are clear deficiencies in the tone from the top. 

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