SEC Audits: 6 Items You’d Better Find, Fast

Junxure’s Greg Friedman argues that CRMs provide a ‘rock-solid corporate memory’ to ward off lawsuits

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  • Client Communication and Miscommunication RIA policies and procedures must specify what type of communications should be retained. The safest course of action is for RIAs to retain all communications—to clients, from clients, and about client accounts.  To comply with fiduciary obligations, communications must be thorough and not mislead.
  • Client Commission Practices and Soft Dollars RIAs should always evaluate whether the products and services they receive from broker-dealers are appropriate. The SEC suggested that an RIA’s failure to stay within the scope of the Section 28(e) safe harbor may violate the advisor’s fiduciary duty to clients, so RIAs must evaluate their soft dollar relationships on a regular basis to ensure they are disclosed properly and that they do not negatively impact the best execution of clients’ transactions.

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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