Never Before Examined Firms

Never Before Examined Firms


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Then on the next slide, we have a topic we continue to see over and over again over the past few years which is the never before examined investment advisor. For several years now, the SEC has focused on never before examined investment advisors and they continue to do so. This initiative includes focused risk-based exams for newly registered advisors. At NorthPoint among our clients, we've been seeing an increased in correspondence exams. These are exams where the examiners are off site and focus on a few high risk areas. The request list we've seen recently usually only has a few items like 10 or even less and the advisor is given about a week to respond.

However, you never know if you could a full scope exam, so it's always best to be prepared for that. A great way to prepare for an SEC exam is to gather responses to a full SEC request list. This really is a very helpful exercise. You can find copies usually of request lists online. This experience allows you to learn how long it takes to retrieve information and also identify if there's any information you have trouble gathering. Sometimes I see that advisors will request a sample of email or a download of a trade blotter, aren't sure exactly how to go about it or were unaware of how long it actually takes to do. This exercise kind of allows you to work out any of the kinks before the SEC is asking you for the information. 

If you'd like to take it a step further, you could conduct a mock audit either internally or through a third party consultant. What a mock audit does is let you see what the SEC would most likely find if they were going to come in and visit your firm today. It gives you a chance to fix some things before they're actually there.

Another tip is to interview your key personnel. Often, the SEC will ask to interview employees. I suggest conducting interviews of people such as your head trader, portfolio manager, chief financial officer. When you're interviewing them you really kind of want to grill them. You want to lean into them to make sure that they'll remain calm and that they answer the question in hand. Be sure the employees know to fully answer a questions but don't provide additional information. I know sometimes call these people the ramblers because there are some people that will just go on and on and pass the question asked, or fill an uncomfortable silence if there's one left, and sometimes that can raise more questions.

You also want to let employees know that if they don't know the answer it's fine to direct the SEC to another individual. I've seen instances where someone tries to answer a question and the information might not be 100% accurate and it just causes confusion and can actually elongate the time of an SEC exam. Then after you complete your interviews, you then you're going to want to review the responses and look for consistency among your employees' answer, your ADV and your compliance manual.

Another thing you want to do is ensure that all compliance issues are documented in a timely manner so you can recall the details and also to show that you handle compliance issues quickly. Two years from now the SEC maybe the ones coming in and you might not remember all the details of when someone forgot to receive pre-clearance on a personnel securities transaction, so you want to be sure to document all of your compliance issues.

Joe, is this actually something that My Compliance Office could be of assistance with, gathering documents for an SEC request list trying to document a compliance issue?

Yeah, it's something our software is more than capable of.

Great, so that's always something to consider. Now next for you we have another polling question on the next slide. If you could just take the time to answer, has your current advisory firm been examined by the SEC? Yes, no, or I'm not sure. If you're not sure you'd probably want to go find out. I'm curious to see who has never been examined because that would put you on the focus that the SEC for these never been examined investment advisors. If you could please take the time to respond.

I see that more than half of you have been examined, but a decent amount, 30%, have never examined. You definitely want to be aware of the fact that you're on the SEC's radar, and they are looking to reach out to all of these never before examined advisors.


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This webinar was cohosted with NorthpointCompliance

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