Virtus Fosters a Culture of Compliance
Virtus Investment Partners, a publicly traded asset management company with $60 billion under management at September 30, 2014, has fostered a strong compliance culture dictated by its structure as a partnership of boutique investment managers.
Its mutual fund complex, closed-end funds, and separately-managed accounts are managed by affiliated managers and select subadvisers, each with a distinct investment style, autonomous investment process and individual brand.
Affiliated managers include Duff & Phelps Investment Management, Kayne Anderson Rudnick, Newfleet Asset Management, and Zweig Advisers.
“Enterprise risk management is a major undertaking for us,” David Martin, vice president of compliance at Virtus Investment Partners, told Markets Media. “A lot of stand-alone investment advisors or broker dealers don’t need to look too far outside their walls in terms of what the enterprise does. We’re a firm with nine or 10 investment advisors, a broker-dealer, and a family of mutual funds, so enterprise risk involves looking at all the risks that face the firm as a whole, not just any one entity in that.”
Martin, who has served in a variety of operational and compliance capacities at Virtus since 1986, is currently chief compliance officer for the broker-dealer arm that acts as principal underwriter for the Virtus mutual funds.
“In my compliance roles with the underwriter, I have primary responsibilities for all the sales material that relates to the Virtus mutual funds, and also overseeing the wholesalers,” Martin said. “We do not sell the funds directly to the public. We sell through third parties, i.e., wirehouses and investment advisors.”
Virtus uses about 60 wholesalers, both internal and external. “The internal ones support the external ones,” said Martin. “The internal ones try to get leads for the externals to go talk to. We make sure that all the sales materials that we put out are suitable to go to the public.”
Martin also serves as compliance officer for Virtus’ transfer agent, which entails making sure that client orders “gets processed on time, correctly, with attention on anti-money laundering and identity theft.”
“We’re the point people for regulatory exams,” Martin continued. “Our firm gets examined by Finra (Financial Industry Regulatory Authority) once every four years to make sure that our books and records are in order. We don’t want to have any surprises, particularly when we sell through third parties who would learn about these kinds of things.”
Martin noted that U.S. Securities and Exchange Commission Chairwoman Mary Jo White gave a speech in 2013 known as the “broken glass” speech because of its reference to the law enforcement theory that small crimes can lead to larger ones.
“The same theory can be applied to our securities markets – minor violations that are overlooked or ignored can feed bigger ones, and, perhaps more importantly, can foster a culture where laws are increasingly treated as toothless guidelines,” White said. “I believe it is important to pursue even the smallest infractions.”
Noted Martin, “We’ve paid attention to that, and have tried to make sure all the details are correct, and our records are accurate and posted in a proper manner.”
Another rule having significant impact is the package of money market reforms adopted by the SEC in July. Even though Virtus liquidated its three money-market funds last October, it is still affected by the rule.
“You’d think it applies only to money markets, and we got out of the money market business in the fourth quarter of last year, but that rule also has requirements for valuation of fixed income securities in any mutual funds,” said Martin. “We have people investigating that right now to see how that would work out.”
Featured image via xy/Dollar Photo Club
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