The October 5 deadline for advisors to appoint a chief compliance officer and adopt formal compliance procedures is right around the corner. Are you ready?
My guess is that the majority of advisors are prepared. But if you have procrastinated, there’s no time to waste. You don’t want to get caught with an old set of compliance rules that don’t apply to your current business, or, worse yet, none at all, when the Securities & Exchange Commission or state regulators come calling.
Joel Shaps, president of Bedrock Capital Management in Los Altos, California, can attest to how important it is to be prepared. He whizzed through an SEC exam about a year ago because his firm was already getting compliance help from National Regulatory Services (NRS) in Lakeville, Connecticut, and from consultants Monahan & Roth (www.monahan-roth.com) in San Diego. “We were ahead of the game,” he says. “If you try and prepare for [an SEC or state exam] the day they call, you’ll never make it. Someone has to take ownership of the compliance issue in every company.” Shaps appointed himself chief compliance officer, or CCO, and is using the NRS (www.nrs-inc.com) compliance manual template and Monahan & Roth’s Form ADV aids. During his firm’s last exam, the SEC asked for 69 items. Because Shaps was prepared, it took him only a few days to pull everything together.
Peggy Cabaniss, a planner with HC Financial Advisors in Orinda, California, was the sole compliance guru in her small firm until she had to start going online to update her firm’s ADV through the Investment Adviser Registration Depository (IARD) and NASD systems. That’s when she started using a consultant for compliance help because, like other small advisory firms, Cabaniss was having a hard time keeping up with the deluge of compliance rules. But more help means shelling out more money. “My costs are going to be about $1,500 to $2,000 per year to have our consultant update our ADV regularly, keep our compliance manual up to date, and conduct a mock audit once a year of our firm,” Cabaniss told me in a recent e-mail. But she is “happy to pay” the extra costs because new regulations have become so onerous.
Finding a Helping Hand
When looking for help with compliance matters, advisors turn to such resources as outside consultants, their custodians, broker/dealers–and trade magazines like Investment Advisor. For example, advisors can get compliance information from The Consortium’s CompliancE-News monthly newsletter, which costs $25 a year for 12 issues and is written by Nancy Lininger. In addition, the Camarillo, California-based Consortium (www.liftburden.com) provides consulting services to investment advisors and broker/dealers on compliance and marketing issues.
In addition to mandating a chief compliance officer, the SEC also requires advisors to come up with a business continuity or disaster recovery plan. Most “advisors don’t have a clue where to start,” Lininger says, because “how you get your office back up and running is more of a technology issue.” With the help of a business continuity expert, Lininger has put together a disaster recovery template that’s available to advisors. Fidelity Investments Institutional Brokerage Group, through its PracticeAdvantage services for advisors, also offers a disaster recovery and contingency planning CD-ROM with step-by-step guidelines on setting up a plan.
Among other custodians, Ameritrade recently started offering a compliance e-mail bulletin to advisors who use its AmeritradeAdvisor Platform. The bulletins are provided by National Compliance Services (www.formadv.com) in Delray Beach, Florida. “Trying to comply with all of the SEC and state rules is the number one priority for advisors right now,” says Tracy DeWald, Ameritrade’s chief compliance officer. Ameritrade asked 20 advisors from its leadership committee for the types of information that they needed nowadays, and the overwhelming response was compliance assistance, he says. The e-mail newsletter is “one of the first initiatives [Ameritrade] has launched to meet those needs.”
Jim Blankenship, of Blankenship Financial Planning in New Berlin, Illinois, receives the Ameritrade e-mail bulletins, and also gets compliance help through the Garrett Financial Planning Network (www.garrettplanningnetwork.com). The Garrett Network, which is run by Sheryl Garrett and includes member firms that serve middle-income consumers, sends out e-mail compliance updates as well and holds a quarterly conference call with members to discuss compliance issues.
Blankenship says his compliance burden has typically been pretty light because he doesn’t custody clients’ assets. But his firm is still required to have a compliance manual. Thanks to help from the Garrett Network, he’s had a compliance manual in place for six months. He says he didn’t have to spend lots of cash to get compliant: “It’s a time issue more than a money issue.”