The True Cost of Compliance: What RIA Owners Must Know Beyond Fines and Filings | Part 1 of 5
- Corrie Scoby
- Nov 13
- 9 min read
By Corrie Scoby • Chief Consultant & Owner, Three Lumos Consulting, LLC
When most Registered Investment Adviser (RIA) firm owners think about compliance, they focus on regulatory deadlines, required disclosures, and avoiding fines. But there’s another layer of cost—less visible, often overlooked, and increasingly significant. It’s the operational infrastructure that supports your compliance program: the technology, workflows, and vendor relationships that keep your firm audit‑ready and regulatorily compliant.
This article is the first in a five‑part series exploring the real‑world costs, decisions, and trade‑offs RIA owners face in building and maintaining effective compliance systems. Over the next several weeks, we’ll go beyond fines and filings to examine the true business impact of compliance—from your technology stack to your recordkeeping habits.
Upcoming topics include:
• Compliance Portability – Can You Really Take Your Data and Go?
• Archive vs. Backup – What’s the Difference and Why It Matters
• Why Your CRM, File System, and Website Must Speak the Same Language
• You Made a Video – Now It’s a Compliance Record
Quick navigation:
Compliance Is More Than Filings—It’s a System
Regulatory compliance isn’t an isolated task; it’s an ongoing, firm‑wide system that spans policies and procedures, supervision, marketing reviews, and recordkeeping. The SEC’s Division of Examinations publishes annual priorities and uses a risk‑based approach to select firms and scope exams [1].
For RIAs, that means your technology choices (email archiving, CRM, marketing review tools, cloud storage, meeting platforms) and your workflows are part of the compliance system—not just back‑office conveniences.
The Visible Costs (and Why They’re Only the Beginning)
Every adviser recognizes visible costs: preparing and updating Form ADV and Form CRS, annual reviews, and routine filings—often supported by consultants or software. Industry guidance notes that a solo RIA may spend a significant share of time on compliance; some estimates place the time burden as high as ~40%, and even a conservative 20 hours per month equals ~12% of a full‑time year [2].
The Hidden Costs Behind Compliance Tech
The “price tag” of compliance technology is often not the true price.
Industry analysis shows that many RIAs experience poor service, limited features, or inefficient workflows only after implementation—forcing principals to spend hours navigating systems that should save time. One study found firms frequently underestimated the operational friction caused by subpar systems, contributing to lost productivity and slower client service [3].
Worse, more than 65% of advisors have lost clients or prospects due to outdated or inefficient tech, even when they believed their systems were modern. Only 3% reported having fully integrated technology; roughly a third said their tech stack actively hindered new business [4].
A low-cost compliance platform isn’t “cheap” if it creates friction, inefficiencies, or lost opportunities.
1. Vendor Lock-In and Offboarding Fees
Vendor lock-in is a very real and very expensive problem.
Many compliance and archiving vendors offer competitive first-year pricing but impose steep renewals or restrictive contract terms later—because they know switching is costly. In GRC platform evaluations, users regularly report year-two price increases of 40% or more, paired with declining service [5].
Some vendors also charge offboarding fees simply to export your own data. In the archiving space, certain providers charge up to $50 per GB (i.e., $50,000 per terabyte) to extract historical records when a firm wants to switch systems [6]. These fees are often not disclosed upfront. Firms only discover them when attempting to leave, creating immediate and unavoidable financial strain.
Always enter contracts knowing how you’ll exit them. Review offboarding terms before you sign.
2. Data Portability and Storage Bloat
The more tech you use, the more data you generate—especially large files like videos, audio recordings, AI transcripts, and marketing materials.
RIA books-and-records rules require retention of originals of all written communications relating to recommendations or advice (Rule 204-2), and the SEC requires that the most recent two years remain “readily accessible” [7], which means they must be quickly retrievable. Many firms accumulate terabytes of data they don’t actually need because systems duplicate files or maintain unnecessary redundant copies. Legacy systems often do not remove duplicates or compress attachments, causing exponential storage growth. And if you ever try to migrate this data? The extraction bill alone could be a shock.
Gigabytes aren’t free. Archive storage is often billed per GB—and those costs add up fast.
3. AI, Automation & Recordkeeping by Default
RIAs increasingly use AI tools to transcribe meetings, summarize calls, or generate client-facing content. But AI output often becomes a record requiring retention.
SEC guidance notes that if AI-generated summaries or notes are transmitted, circulated, or relied upon, they likely qualify as books and records subject to Rule 204-2 retention requirements [8]. Conversely, AI-generated insights not shared or saved may not require archiving—but firms must understand the distinction.
Automation also has hidden human costs:
false positives and false negatives in surveillance
needed AI model tuning
staff training on appropriate use of AI-based tools
increased oversight of AI generated content
Gartner’s 2024 analysis emphasizes that many compliance teams struggle to manage AI complexity—not because AI is ineffective, but because it requires constant human oversight to use effectively [9].
If it’s created in the course of business—and it contains client or firm information—it likely needs to be properly archived and reviewable.
Hidden Costs That Hurt Growth
Lost Time and Opportunity Cost
Time that principals spend interpreting rules or assembling exam responses is time not spent on clients or growth. High‑performing firms strive to keep principals focused primarily on client work rather than admin tasks like compliance [2].
Reputational Damage and Client Trust
Examination findings or enforcement actions often must be disclosed in Form ADV and client communications, which can erode trust and hinder new business. Industry coverage underscores that RIAs increasingly view compliance as essential to protect reputation and growth [3].
Heightened Regulatory Scrutiny
The Division of Examinations selects firms and sculpts exam scopes based on risk signals; prior deficiencies can attract follow‑up and more frequent reviews [1].
Fines, Remediation, and Disruption
Marketing Rule enforcement continues, with sweeps imposing six‑ and seven‑figure combined penalties and remediation commitments on RIAs [10].
Impact on Firm Valuation
In M&A and succession, buyers discount firms with compliance problems or negative reputations; strong controls can improve attractiveness and value [11].
Compliance Software Isn’t Just About Features
It’s about functionality, accessibility, and control.
Advisers often purchase systems with long lists of features, only to discover:
poor training
weak integration
confusing workflows
slow updates
overwhelming alert volume
little alignment with their real business processes
Only about half of advisory firms report satisfaction with vendor training and support for technology tools [8]. And when compliance tools generate too many alerts, someone still must triage them—another hidden cost. Gartner warns that many compliance leaders adopt tools that increase complexity due to poor alignment with processes, creating additional manual work rather than reducing it [9].
The real question isn’t “what features does it have?” but “what problems does it actually solve?”
Whose Job Is It, Anyway?
Answer: The Firm – Not the Vendor – Is Responsible for Compliance
RIA owners often believe compliance software will “take care of everything.” But regulators make clear that RIAs cannot outsource ultimate responsibility or abdicate its fundamental compliance obligations. No matter how many tasks are contracted out, the advisory firm itself remains ultimately accountable for adhering to securities laws and regulations. For example, the North American Securities Administrators Association (NASAA) – representing state regulators – emphasizes that “it remains the firm’s sole obligation to follow state and federal compliance regulations” and that “it is ultimately the responsibility of the firm to ensure compliance, not the consultant”[12].
In other words, hiring a third-party compliance consultant or service does not shift the duty – if a violation occurs, regulators will hold the RIA accountable, not the vendor. Federal SEC guidance echoes the same principle: an adviser cannot delegate away its supervisory or compliance duties. An SEC Risk Alert on outsourced compliance officers bluntly states that even when using an outside Chief Compliance Officer, “advisers with outsourced CCOs retain the responsibility for adopting and implementing an effective compliance program.”[13].
Applies Even to Outsourced Technology & Surveillance Tools
These principles apply across all types of outsourcing, including modern scenarios where firms use third-party technology platforms, archiving solutions, or trade surveillance systems. Regulators expect that even if an RIA uses an external software or cloud service for compliance functions, the firm must ensure those tools are effective and compliant.
State regulators caution that third-party tech solutions are no silver bullet – the RIA must verify and supervise their use. NASAA notes that while consultants or tools can assist, “the firm should view the consultant as a partner… rather than the sole answer,” since ultimate responsibility stays with the firm [12]. Whether you outsource compliance tasks or use outsourced software, the SEC and state authorities are unified in expecting RIA firms to maintain active oversight and assume full responsibility for compliance and supervision. You cannot delegate the blame: the duty to comply (and any consequences for failures) rests squarely on the advisory firm.
If you use third-party tools, someone inside your RIA must:
manage user access
oversee technology alerts
monitor data and document retention
verify integrations are connected and properly functioning
manage updates for user devices
resolve data issues with vendors
coordinate with vendors to produce documentation during an audit or legal event
In small firms, this often becomes an unofficial job for operations staff, office managers, or owner-adviser representatives—adding to their workload and increasing firm risk.
Someone inside the firm must understand the day-to-day mechanics of your systems—even if you outsource implementation.
The Firm's Compliance Archivist: Your Unsung Hero
Beyond software, every firm needs a human who is designated as the custodian of records—whether or not that’s their formal title. This person:
ensures original data and records are preserved
tracks where records are maintained
tests retrieval capability and functionality
monitors user access controls
prevents data corruption and/or loss
manages retention schedules in line with record keeping requirements
During SEC exams, this role becomes invaluable. Examiners expect timely production of records—often within 24 hours for recent materials [7].
Backups are not archives. You need to show that both original and distributed materials are preserved, unaltered, and accessible.
Build Compliance as an Investment, Not a Tax
Right-Sized Expertise
Many growing RIAs engage outsourced CCO support rather than hiring immediately in-house; industry reporting outlines when outsourcing can be cost-effective and what to consider when performing due diligence for potential providers [14].
Leverage Technology & Automation
Automation can reduce errors and save time, freeing principals to focus on client service—but only if the tools are well-implemented and supervised [2].
Stay Ahead of Regulatory Change
Keep policies aligned with SEC exam priorities and Risk Alerts; conduct annual reviews and consider mock exams so you’re audit-ready [1].
Conclusion: Beyond Fines and Filings, It’s About Your Firm’s Future
The true cost of compliance touches every part of an RIA’s operations—from technology to talent. Treating compliance as a strategic investment strengthens client trust, protects valuation, and enables scalable growth.
Stay tuned for the next article in this series:
“Compliance Portability – Can You Really Take Your Data and Go?”
We’ll unpack vendor exit terms, data portability, and off-boarding costs to help you avoid surprises.
Corrie Scoby
Chief Consultant & Owner, Three Lumos Consulting, LLC
We guide RIAs with clarity, integrity, and partnership—so you can spend less time on compliance and more time serving clients.
Note: This article provides general information and does not constitute advice. Consult your compliance team for guidance specific to your firm.
Sources
[1] SEC Division of Examinations — 2024 Examination Priorities
[2] LPL Financial — Calculating the Cost of Compliance for RIAs
[3] InvestmentNews — RIAs Are Embracing Compliance as a Necessary Discipline
[4] InvestmentNews — Bad Tech Costs Advisers Money and Clients
[5] Cyber Sierra — The Hidden Costs of GRC Platform Vendor Lock-in
[6] SteelEye — Data Ownership: Hidden Data Extraction Fees in Communication Archiving
[7] SEC Rule 204-2 — Books and Records Requirements for Investment Advisers (via Cornell Law)
[8] Skadden — How and When SEC Recordkeeping Rules May Apply to AI-Generated Content
[9] Compliance.ai summary of Gartner 2024 — Compliance Leaders & Technology Complexity
[10] SEC Press Release — Nine Investment Advisers Charged in Ongoing Marketing Rule Sweep (July 2024)
[11] Exitwise — Understanding RIA Valuation (Compliance Impact)
[12] NASAA — Compliance Matters: Compliance For Hire
[13] SEC – Risk Alert 11/9/25 — Examinations of Advisers and Funds That Outsource Their Chief Compliance Officers
[14] InvestmentNews — Is CCO Outsourcing the Right Move for Your RIA Firm?
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