More On Legal & Compliancefrom The Advisor's Professional Library
- Do’s and Don’ts of Advisory Contracts In preparation for a compliance exam, securities regulators typically will ask to see copies of an RIAs advisory agreements. An RIA must be able to produce requested contracts and the contracts must comply with applicable SEC or state rules.
- Agency and Principal Transactions In passing Section 206(3) of the Investment Advisers Act, Congress recognized that principal and agency transactions can be harmful to clients. Such transactions create the opportunity for RIAs to engage in self-dealing.
“It’s all about the data, and how to get to it—fast.”
Greg Friedman’s stark comment about the key to a successful compliance examination kicked off his presentation in Denver to advisors and compliance officers Thursday morning.
The session, sponsored by Laserfiche, was the technology follow-up to well-known compliance lawyer Tom Giachetti. Giachetti’s presentation centered on red flags that attract the attention of examiners, while Friedman focused on using a CRM to eliminate or minimize their causes, as well as what to do during the exam itself. Friedman, president of Private Ocean Wealth Management as well as CRM software firm Junxure, listed the following items as those that examiners will likely request to see:
—Current client lists
—Contact lists (both email and postal correspondence)
—Proof of a “culture of compliance,” including documentation of procedures for recurring actions, action sequences and action templates
“A CRM has built-in compliance fields,” Friedman (right) explained. “You just have to change the dates to suit the time periods examiners want to see and you can bring it up right in front of them.”
Friedman noted that “it’s usually an older person with a new, younger person. The former wants to see how the latter will perform, but often the latter doesn’t really know what it is they’re asking for.”
The speed, ease and accuracy with which the requested information can be retrieved will go a long way in determining the outcome of the exam. Friedman noted that a client of Junxure was told by an examiner that if the client could produce one last bit of information as the examiner was sitting there, the examiner would guarantee that the client would not be examined for at least another five years.
“The client proudly told me they were able to produce it, and it demonstrated that culture of compliance to the examiner,” he noted.
Freidman then provided examples of the types of questions he was asked during his own examinations.
- “Explain how you determined that the recommended allocations and investments were appropriate for this client.” Friedman noted that the breadth of data gathered from the client as well as the notes stored in the CMS were instrumental in satisfying the examiners.
- “There was a trade back on this particular date that was not on your trade blotter. Can you explain this?” Once again, Friedman said service notes in the CRM “saved the day.”
- “We would like to see the following client lists: New clients during the examination period, lost clients during the examination period, clients by state, discretionary clients, and a list of the advisors in the firm." Friedman noted he could retireve the information almost immediately.
----Read Giachetti: Don’t Listen to the Kool-Aid Compliance Salesmen on AdvisorOne.