More On Legal & Compliancefrom The Advisor's Professional Library
- The Few and the Proud: Chief Compliance Officers CCOs make significant contributions to success of an RIA, designing and implementing compliance programs that prevent, detect and correct securities law violations. When major compliance problems occur at firms, CCOs will likely receive regulatory consequences.
- Proxy Voting RIAs are not required to vote proxies on behalf of their clients. However, when an RIA does assume responsibility for voting proxies, the firm’s policies and procedures should help to ensure that votes are cast in the best interest of clients.
What's the most challenging compliance issue facing advisors today?" asked former SEC Chairman Harvey Pitt at an interactive session of the Cadaret, Grant 2005 National Sales Forum, held in Woodcliff Lake, New Jersey, in early October. The overwhelming answers were "paperwork" and "staying current and understanding the regulations."
In the aftermath of scandals involving some investment firms, reality now means that the paperwork that advisors must do to keep compliant is much more complex and time consuming than ever before. In addition, advisors have to deal with clients who may be bitter about experiences they've had with other brokers or advisors. Referring to the investigations as "pernicious prosecutorial" events driven "by an aspiring governor," Pitt, founder and CEO of Kalorama Partners, LLC, had some practical advice for advisors.
"The single biggest problem is suitability," he says. Even Pitt's aunt, a widow, was put into an inappropriate investment. Needless to say, the advisor who did that is being investigated. "If something you put a client into is not working out, let them know, let them hear from you, not feel that they caught you," he said.
"Keep accurate and detailed records. Don't trust your memory, take notes and comments contemporaneously," he argues. "Consider quarterly or more frequent reviews, with a phone call or meeting. Clients will love that you're thinking of them." Pitt says that it makes sense to do "periodic forensic reviews. If you find problems early enough, you can fix them. There should never be any de minimis breaches of integrity."
Make good policy and be sure clients understand it. Let them know that if you make a mistake, "we fix it, right away, and we stand behind what we do." And mean it. Pitt adds, "Sometimes bad things happen to good people and good companies--how prepared you are to respond and rectify is key."
Because, as Arthur Grant, president of Cadaret, Grant & Co. based in Syracuse, concludes, "it's just good business to do things the right way."