At SSG, a Focus on Compliance, Including Expert Advice for State- and SEC-Registered RIAs

The other member of the compliance panel, Christopher Winn, founder and managing partner at AdvisorAssist, noted that there was a “self-preservation aspect” of FINRA’s desire to be the SRO for advisors. In Goldman’s speech later Thursday, he said Richard Ketchum and FINRA were “lobbying hard to become” that SRO, though Capitano pointed out that there remained a question of whether FINRA had the “skillset” to regulate RIAs. Goldman pointed out later that FINRA had admitted it didn’t have the existing structure or expertise to regulate RIAs. In Congressional testimony last September, as previously reported by AdvisorOne, Ketchum, CEO of FINRA, pledged that it would build such a structure, “a separate entity with separate board and committee governance to oversee any advisor work, and would plan to hire additional staff with expertise and leadership in the adviser area.”

The compliance session panelists addressed how another aspect of Dodd-Frank implementation was playing out: the ‘big switch’ of RIAs with less than $100 million in AUM from federal to state oversight. “The state regulators are being smart about how they deploy their teams” in handling what Winn said was “a level of activity that they’ve never seen before” with the several thousand  advisors nationally making the switch. He’s heard of a rush of exams of state-registered RIAs in the first two months of the year so the states can clear their schedules to accommodate the big switch. Since, Winn said, “field examiners are being called into doing registration work” at state securities commissions, there may very well “be a pause in exams this spring” since those field examiners are in the office rather than in the field.

In what should be good news for advisors moving to state registration, Capitano said that “states are reaching out to RIAs,” and appear to be taking more of a risk-based approach to exams. Winn agreed saying he has been “pleasantly surprised by the outreach” of the states and even the responsiveness of the SEC to inquiries. Winn prompted laughter from the advisor attendees when he concurred with Capitano on states’ kinder-and-gentler approach to exams in the short run. “Some states have even changed the name” of their exams in correspondence with advisors, Winn said, from ‘audits,’ to “‘technical assistance’ requests,” reflecting a more collaborative approach to conducting exams.

However, Capitano said that “states will be prepared” to conduct exams, and that “they will find things that are wrong.” Winn agreed, and suggested that advisors should always “do what you say” to stay on the right side of regulators. Among their suggestions to prepare for a visit from either SEC or state regulators:

• Winn recommended that advisors prepare and share with examiners a PowerPoint slideshow that describes the scope of their businesses
• Capitano suggested that to avoid running afoul of restrictions on testimonials and advertising that advisors “not forget that your website is advertising.”
• Be aware, said Capitano, that if you’re moving from Federal to state registration, if you are registered in different states, “you might have conflicts” between the requirements of the different states
• Winn suggested that you cross your t’s and dot your i’s as well. “Have a trade error log, even if you have never made such an error.”

Read full coverage of SSG’s 2012 Conference in San Diego at AdvisorOne.