The best approach for an investment adviser firm to prepare for a regulatory examination begins with ongoing compliance training. A report released by the U.S. Securities and Exchange Commission (“SEC) on February 2011, stated “In most cases, the staff considers the quality of the [investment adviser’s] compliance systems and its internal control environment when determining the scope of the examination and the areas to be reviewed.” Investment advisers with a vigorous compliance program, including training and preparing for regulatory examinations, will find that regulatory audits are more likely to progress smoothly. Investment adviser firms that fail to demonstrate a solid understanding of their investment adviser’s compliance program will likely leave the securities regulator with concerns that the investment adviser is failing to protect the safety of its client’s assets. The examiners may deem it necessary to seek further information and request additional documentation from the investment adviser. Failure to provide requested documentation and a display of an inadequate compliance program will likely be the result of a deficiency letter, and/or remedial or enforcement action against your investment adviser firm. In the same report discussed above, the SEC has stated that unfortunately, “most examinations conclude with a deficiency letter.”
Investment advisers need to be aware that regulatory examinations, both SEC and state securities regulators, may be conducted on a surprise basis with no advance notice. These surprise examinations can easily be conquered with advance preparation on the part of the investment adviser. Understanding the regulatory examination process, being prepared for the requests of the securities regulator, having a solid knowledge of your investment adviser’s operations, and knowing your federal or state laws and regulations will elevate much of the stress of the investment adviser examination process. Consider that the securities regulators have the right to request your investment adviser’s books and records, conduct interviews with your firm’s management and employees, and have the right to an on-site visit of your investment adviser’s offices. Regulatory examinations are not designed to hinder investment advisers, but rather seek to protect the best interests of your clients.
RIA Compliance Consultants has a wealth of regulatory knowledge. If your investment adviser is concerned about preparing for a regulatory examination, our Senior Compliance Consultants can work with you to identify regulatory risks in this rapidly changing compliance environment. On Thursday, September 15, 2011 RIA Compliance Consultants is hosting a webinar, “Preparing for a Regulatory Examination,” in which our Senior Compliance Consultants discuss the regulatory examination process and provide you with general guidance and tips for preparing and getting through the examination. If you would like to join this live webinar, click here to register. Or if your investment adviser would like assistance with creating and implementing a customized and more comprehensive compliance program, click here to schedule a time to speak to one of our Consultants to see how RIA Compliance Consultants can assist your investment adviser firm.