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Regulation and Compliance > Federal Regulation > SEC

When Examination Day Arrives . . .

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When going through a regulatory examination, RIAs should be prepared to take these steps before, during, and after the process:

  • Conduct an entrance interview with the examiners to provide an overview of your advisory practices and operations–what you do and don’t do. This will help the examiner and your firm to narrow the scope of the issues to be addressed during the examination process. Are you fee-only or do you receive commission-based compensation? Are you subject to any current complaints, litigation, or regulatory proceedings? Do you have soft-dollar arrangements, pay referral fees, publish composite performance, buy IPOs, have custody of client funds or securities, or advertise? Do clients direct brokerage, appoint you or a related person as trustee or executor, or vest you or a related person with check-writing authority?
  • To the extent you are able, address and correct issues or deficiencies raised by the examiners prior to the conclusion of the examination, and advise them accordingly. Correspondingly, know when and how to request clarification, or to disagree or respond to issues that you believe have been misconstrued or cited in error. Speak with legal counsel at least daily to address issues raised during the examination.
  • Request an exit interview, during which the examiners should discuss their findings with you. Take notes. The firm principal responsible for interacting with the examiners should already be aware of these issues, and, hopefully, be able to address and remedy them, or at least have begun to do so. If any of the issues cited by the examiners are of such substantial concern that they could potentially result in referral to the SEC’s Enforcement Division, immediately begin to address the issue with your counsel prior to receipt of a follow-up informational request or the receipt of a deficiency letter.
  • Respond promptly and appropriately to the issues raised in any follow-up informational requests or in the deficiency letter received from the SEC. Know when and how to disagree or respond to issues that you believe have been misconstrued or cited in error. Make sure that you take the corrective action indicated in your response letter.