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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  • Privacy Policies and Rules Whether an RIA is SEC or state-registered, the firm must have policies and procedures in effect to protect clients’ privacy. Policies and procedures should explicitly require an RIA to send out its privacy notice each year.
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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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