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Practice Management > Building Your Business

Are Your ‘Best Practices’ Good Practices?

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“Best practices”—how I despise that term! It is so abused, often by those who have little to no understanding of why it is or isn’t even a good practice. It is generally overused by the “bang a square peg in the round hole”—better known as the “one size fits no one”—consultant. The truth is there is rarely a universal best practice. Whether a practice is right for your business depends upon your business.

In addition, for too long the best-practice crowd has used the term as if the recommended practice is a regulatory requirement, only later learning it is not a requirement. In my lecturing throughout the country, I find that audience members, when I ask a question, raise their hands insisting that certain functions or practices are “required,” only to learn that they are not and, in many instances, never have been.

So, for those advisors who like the best-practice mentality, keep drinking that Kool-Aid. For the rest of you, here are just a few examples of practices you may be undertaking that are unnecessary or redundant:

  1. Meeting minutes. Of course, they are required, right? No, and they never have been. Well then, they must at least be a best practice? Maybe not. They are discoverable, and the Securities and Exchange Commission requests them during an exam (although the exam question was changed a few years ago to require “minutes, to the extent they are maintained,” as the result of a very handsome—and modest—lawyer and columnist pointing out to the SEC during one of his lectures that keeping minutes is not a regulatory requirement).

    Now, I am not opposed to keeping minutes so long as you do so prudently and for the right reasons. A “right” reason is not because it is a best practice. Why? Are the minutes necessary for context purposes, as part of the next meeting? Does the scrivener actually understand what has been discussed or agreed upon? Have the minutes been vetted, amended (to the extent required) and adopted at the next meeting? If not, you may have planted a ticking time bomb that will only be discovered when you are required to produce them.

  2. Sending quarterly fee invoices. I always ask this question during lectures, and almost half of the audience raises their hands to say they are required. The answer for SEC advisors, though, is no, they are not required so long as the custodian sends an account statement, at least quarterly, that reflects the fee debit. I will let you in on a little secret: Most all custodians send such statements on a monthly basis. Now, if advisors merely include it as part of a regular quarterly correspondence (i.e., supplemental firm-prepared portfolio report), that is fine, but is it required? No!

  3. Anti-money laundering practices. Required? No, never have been. A best practice? I beg to differ. While there remains ongoing consideration to make AML efforts a regulatory obligation for registered investment advisors, they have never been required. In fact, the question has long since disappeared from the exam, thanks to that same very handsome and modest attorney and columnist having reminded the SEC many times in deficiency letter responses and during lectures that they are not, and have never been, required. If you undertake AML practices voluntarily, fine; I can’t take issue with that. However, they are also being done by the custodian, and I remind the regulators that making such a requirement of investment advisors would only be duplicative. But when was the last time common sense prevailed in Washington?

So for you Kool-Aid drinkers, continue to imbibe. For the rest of you, think before you act!


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