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.
Greg Friedman agrees with Tom Giachetti — to a point.
The latter delivered a speech last week in Boston that was “typical Giachetti,” direct, in-your-face and full of the salty language for which the chairman of the securities practice group at the law firm Stark & Stark and contributor for ThinkAdvisor is known. Giachetti divulged five red flags that SEC auditors are zeroing in on during their RIA examinations.
Friedman, CEO of both the wealth management firm Private Ocean and the software provider Junxure, conceded the points were valid, but the bigger issue, he argued, is lawsuits.
“Yes, the SEC is focused on these five red flags at the moment, but they seem to go back and forth,” he countered. “They sometimes get hung up on the little stuff, and if you can’t produce it in a timely and organized fashion, they’ll nail you on it.”
According to Freidman, it’s all about the data and how to get to it fast, specifically these six:
1. Client lists — current clients, ex-clients, wrap-fee clients, related persons, etc.
2. Contact lists — vendors, advisors to firm, etc.
3. Important dates — account inception date, termination date, contract date, etc.
4. Important account data — discretionary? Managed? Type of Account?
5. Client communication — email, correspondence
6. Demonstrating a “culture of compliance” — recurring actions, action sequences, action templates
This is why CRM and compliance technology are critical now more than ever, he added (admittedly with a dog in the hunt) for both SEC audits and private legal action.
The still-recovering economy means individuals are correspondingly still looking for a way to recoup their losses “from their own poor spending habits prior to 2008,” meaning the less scrupulous will litigiously come after whomever they can, advisors included.
“More than anything, technology has provided me with a rock-solid corporate memory,” he said. “Every move we make on behalf of our clients and the firm is documented, with an explanation of why we made the move.”
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