More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- How to Avoid Sabotaging Your Compliance Exam There is much more to compliance examination survival than knowing all of the rules. It helps to understand why the rules were put in placeand to recognize that examiners are not the enemy.
A favorite complaint of advisors is regulation. Most will tell you that it’s not that they disagree with the concept of regulation in theory, it’s what regulation in practice fails to accomplish. Instead of catching the bad guys, regulation merely adds layer upon layer of compliance burdens to the good guys.
One solution would be more cooperation between the good guys and their regulators on the federal level, either SEC or FINRA, or state securities regulators.
That’s why it was refreshing to hear from two compliance professionals at the Shareholders Service Group’s first annual conference in San Diego in early March. Kelli Capitano of National Compliance Services and Chris Winn of Advisor Assist both have their ears to the ground when it comes to what federal and state regulators are looking for in exams. In a session I moderated, we discussed the “big switch” from SEC to state oversight for RIAs with less than $100 million in AUM.
The good news for advisors making the switch, Capitano said, was that the “states are reaching out to RIAs” and appear to be taking more of a risk-based approach to exams. Winn agreed, saying he has been “pleasantly surprised by the outreach” of the states and even the responsiveness of the SEC to advisors’ inquiries about what will be expected of them. “Some states have even changed the name” of their exams, Winn said, from “audits” to “technical assistance requests,” reflecting a more collaborative approach.
Capitano warned, however, that this more collaborative approach doesn’t mean the regulators have lost their teeth when it comes to conducting exams. Among the two compliance experts’ suggestions for how advisors should prepare now for a visit from either SEC or state regulators:
- Winn recommended that advisors prepare and share with examiners a PowerPoint slideshow that describes the scope of their businesses.
- Capitano suggested that to avoid running afoul of restrictions on testimonials and advertising, advisors should “not forget that your website is advertising.”
- Be aware, said Capitano, that if you’re moving from federal to state registration, if you are registered in different states, “you might have conflicts” between the requirements of the different states.
- Winn suggested that you cross your t’s and dot your i’s as well, even to the point of making sure you “have a trade error log, even if you have never made such an error.”
Perhaps we can hope that such a collaborative approach will become the rule rather than the exception. Perhaps we can hope that the SEC is given what it wants in funding to be a more effective regulator, not a ham-fisted enforcer. The SEC and the states are charged with protecting investors, of course, but they can do so without making compliance an unbearable burden for advisors. It’s spring, and we can hope for the best.