Advisors, listen up: if you aren’t already doing all the things your compliance manual and supervisor say you are, you’d better start.
That is the first thing you should be making sure of in 2012, and one thing regulators are always looking for, according to Nancy Lininger of The Consortium, a firm that helps RIAs and broker-dealers with compliance issues. She warns that if they find you aren’t living up to those commitments, they will come down hard on you.
Asked about the top compliance issues she sees for RIAs and BDs in 2012, she offers several suggestions for those who want to stay on the side of the angels, and warns, “… regulators are always looking for deficiencies.” In a time when Madoff-sized schemes make the public question who’s in charge, regulators “have to look effective.”
Another red flag, says Lininger, is making sure that your Form ADV accurately discloses your fees and your services. “Regulators [will] go through [the ADV and notice if] you say you’re doing this service and you’re not, or you say you’re charging this fee and you’re charging another. That will be another thing they focus on,” she says.
Have you looked at your ADV Part II lately? Now it is known as ADV Part 2, and that isn’t all that has changed–and it’s another area that she warns will come under scrutiny if you’ve made any material changes in your business.
If you have, you’ll have to fill out the Summary of Material Changes section and be sure to send it to your clients. Previously, says Lininger, advisors had to ask their clients annually if they wanted to see the ADV, “and no clients ever asked for it.” Now, however, it’s not so cut and dried.
Any clients who received an ADV in the past have to be sent the Summary of Material Changes along with the new ADV. Advisors “tend to get lazy on the compliance side,” says Lininger, “and don’t want to bother clients with too much information because the clients won’t read it anyway, advisors might self-justify that it’s not a material change so they don’t have to send out anything.”