What ‘Better’ Regulation Might Look Like

The good news for advisors making the switch, Capitano said, was that the “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 advisors’ inquiries about what will be expected of them. “Some states have even changed the name” of their exams, Winn said, from “audits” to “technical assistance requests,” reflecting a more collaborative approach.

Capitano warned, however, that this more collaborative approach doesn’t mean the regulators have lost their teeth when it comes to conducting exams. Among the two compliance experts’ suggestions for how advisors should prepare now 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, advisors should “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, even to the point of making sure you “have a trade error log, even if you have never made such an error.”

Perhaps we can hope that such a collaborative approach will become the rule rather than the exception. Perhaps we can hope that the SEC is given what it wants in funding to be a more effective regulator, not a ham-fisted enforcer. The SEC and the states are charged with protecting investors, of course, but they can do so without making compliance an unbearable burden for advisors. It’s spring, and we can hope for the best.