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Understanding the inner workings and pressures on the SEC is valuable to advisors, but RIAs are mostly worried about SEC examiners—and they should be, according to Tom Giachetti, chair of the securities practice group at Stark & Stark. “They’re assuming you’re doing something wrong,” said Giachetti of SEC examiners under Mary Jo White. Speaking at a Fidelity IWS conference in New York in November, Giachetti (a regular contributor to this magazine) said the examiners’ new get-tough approach to auditing RIA firms comes right from the top.

He cited an October 2013 speech in which Chairwoman White, a former federal prosecutor, promised that SEC enforcement will be “felt and feared,” employing a “Giuliani-style” approach.

In New York and Boston, Giachetti said, the SEC is hiring more prosecutors, and the SEC itself is “trying to make law” in its enforcement actions. “Examiners in Philly and L.A.” will take very different approaches in exams, Giachetti said, so rather than following a “best practices” approach, he urged advisors to take their fiduciary responsibility seriously; make sure that “when the examiners come, it’s the chief compliance officer’s job” to deal with those visitors; and when those examiners question a practice at your firm, “ask if this is a regulatory violation.”

“You can’t regulate criminals,” Giachetti said, but he did encourage advisors to ensure their compliance with the SEC’s custody rules. “Make sure you conduct due diligence on private investments,” institute strong cybersecurity protections, and create and adhere to a social media policy. Oh, one other thing Giachetti suggests you should not do when dealing with SEC examiners: “Don’t lie to the government.”

—James J. Green


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