Investment advisors are taking compliance issues very seriously, and believe that valuation of client assets is the hottest topic in that area right now, according to a compliance survey released yesterday by the Investment Adviser Association, Old Mutual Asset Management, the ACA Compliance Group, and ACA Insight, an industry publication. The survey examined how advisors changed their compliance programs as a result of the financial market collapse.

Forty-one percent of advisory firms believe that the valuation of client assets is the hottest compliance topic, saying the economic turmoil influenced their firm’s pricing and valuation processes. “They think it is an area that the regulators are focusing on,” said Amy Yuter, vice president and senior compliance officer of Old Mutual Asset Management. “But I don’t necessarily think they view it as a high-risk area for their firms, due to mitigating controls that are in place.” Indeed, 59.3% of firms said that none of the securities they oversee have been difficult to price.

Advisory firms appear to prefer having chief compliance officers serve solely in the CCO role, rather than in multiple roles within their firms, a sign that compliance issues are being taken very seriously, Yuter said. The percentage of CCOs who perform the CCO function exclusively increased to 31% in 2009, up from 20% in the 2008 survey. Also, 24% of firms who responded to the survey reported employing more than four people in their compliance departments, up from 16% in 2008.

“The fact that you have more firms dedicating a person to the CCO role shows the importance of compliance,” Yuter said. “It just reflects how important the function is.” A majority of firms maintained spending on compliance resources, such as the overall compliance budget, attendance at out-of-town conferences, staff positions and compensation, and the use of outside consultants. And they are taking the initiative without prompting from regulators, according to the survey. Only 9% of investment advisors reported that they were influenced by the Securities and Exchange Commission’s staff message not to cut compliance spending.

A vast majority of participants, 85%, reported that they did not change procedures to verify that they had proper custodians in place for client assets. The overwhelming majority—93%—of advisory firms said they maintain client assets with a third party, independent custodian, which likely explains the continuation of current procedures, according to the survey.

The fourth annual Investment Management Compliance Testing Survey was conducted online in March and April. Responses came from 440 compliance professionals representing SEC-registered investment advisors.