You're familiar with the phrases "know your client" and "know your product." But one phrase that most people aren't as familiar with is, "know your business."
A self-audit is a useful tool for getting to know your business. While carefully reviewing the processes in place and (who is responsible for each) you'll discover procedural gaps because staff isn't sure to whom certain responsibilities belong. In addition, a self-audit gives you the chance to make informed decisions that improve your ability to seize opportunities. Moreover, you'll discover how to bulletproof your office against regulatory scrutiny and other challenges. The following questions serve as guidelines for conducting a self-audit:
how things get done
- Have checks and direct business items been recorded on the direct mail trade and check log?
- Trades directed by your office to a product sponsor, including mutual fund buys, sells, and exchanges and variable annuity sub-account reallocations (except auto-rebalancing programs) should be recorded on this log. For automated periodic purchases, only the initial transaction must be logged.
- 1035 exchanges and direct mutual fund transfers/rollovers should be recorded on this log.
- Have all checks received for brokerage/advisory business been recorded on your check and certificate received log?
- Have you reviewed how business is submitted to your OSJ, your broker/dealer or product sponsor?
- Have you reviewed the process for logging client contacts into your CRM system?
- Are all files, including licensing, advertising, correspondence, complaint, client and compliance files up-to-date?
- Have you reviewed your prospectus inventory to ensure that you have the most recent versions, typically printed within the last 13 months?
is the end result adequate?
- Are client files complete?
- Can an outsider look at a particular transaction in a client's file and know exactly why it made sense?
- Do clients' documented investment objectives on new account forms match the underlying securities held in their accounts?
- Are prospectus receipts and switch forms received for all required transactions?
- Have all client forms on file been completed and signed?
- Trade ticket/blotter review
- Does the solicited/unsolicited/discretionary field accurately depict the way in which an order was processed?
- Job expectations
- Are tasks explicitly assigned to individuals, and are individuals clear about what is expected of them?
- Business continuity plan
- Is a proper plan in place? If so, you have the ability to continue servicing clients if something happened to your physical branch location.
- Protection of client information
- Are your files secure and accessible only by affiliated people in your office?
- Do Not Call Log
- Do you have a record of all clients who have asked to be placed on your Do Not Call Log?
- Have you verified that all advertisements and seminar materials currently used by your office have been reviewed by your broker/dealer within two years of the last approval date?
- Has all client administrative correspondence (excluding e-mails) been filed chronologically in your central correspondence files?
- Has all investment-related correspondence (excluding e-mails) been forward to your broker/dealer within 10 days after providing to clients?
These are just a few topics to cover in your self-audit. They are the kinds of things that regulators and compliance staff commonly check for during visits.
Rob Molinari is the assistant director of the supervisory controls unit in Compliance at Commonwealth Financial Network. He can be reached at firstname.lastname@example.org.