Compliance

If Houston financial advisor Larry Maddox learned one thing from his first SEC examination seven years ago, it was this: SEC exams are very disruptive to business. The biggest surprise, he recalls, is how labor-intensive it was—the time spent preparing and the days spent going through it. “It wasn’t an unpleasant experience, Maddox adds. “But expect to be out of commission for the two or three days you’re being audited.”

Maddox, CFP, CPA, co-founder and lead advisor at Horizon Advisors, which manages $200 million for its 100 client families, works closely with compliance consultant Linda Shirkey in ever-ready anticipation of a follow-up to that 2004 exam.  Read More

A lot has changed in the financial planning profession since Horizon Advisors underwent its first SEC examination seven years ago. In only the last two years, the scandal surrounding Bernie Madoff’s infamous Ponzi scheme cast Registered Investment Advisors into an unforeseen spotlight and extraordinary regulatory scrutiny.

How, then, in this post-Dodd-Frank climate of increasing paranoia, does a plain vanilla firm prepare for an SEC exam?

The answer is “very carefully.”

Larry Maddox, CFP, CPA, co-founder and lead advisor at Horizon—a Houston firm that manages $200 million for some 100 client families—remembers that first audit well.

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The Securities and Exchange Commission today adopted rules to create a whistleblower program that rewards individuals who provide the agency with high-quality tips that lead to successful enforcement actions.

The new SEC whistleblower program, implemented under Section 922 of the Dodd-Frank Act, is primarily intended to reward individuals who act early to expose violations and who provide significant evidence that helps the SEC bring successful cases.

To be considered for an award, the SEC’s rules require that a whistleblower must voluntarily provide the SEC with original information that leads to the successful enforcement by the SEC of a federal court or administrative action in which the SEC obtains monetary sanctions totaling more than $1 million.  Read More

Following the aphorism that a lawyer who represents himself has a fool for a client, Gordon J. Bernhardt, CPA, does not prepare his own tax returns. And while he’s also a PFS, CFP® and AIF®, the president and founder of Bernhardt Wealth Management in McLean, Va. decided years ago that successful compliance requires outside assistance.

A Nebraska native, Bernhardt worked for a U.S. Congressman and the Senate Finance Committee before embarking on a career in corporate accounting. In 1992, he left accounting for financial services—first with Acacia and then American Express (now Ameriprise). Dissatisfied with their business models, by ’94, Bernhardt opened his own investment advisory firm.

“As a struggling new business owner, I remember trying to save every little penny. I found a guy who advertised that for $300 to $350 he’d draft your form ADV. The language was accepted, but not long after that, I ran across Nancy Lininger and she really tweaked the language.” Lininger an RIA Central contributor and founder of The Consortium (http://www.liftburden.com), a compliance and regulatory consultancy for RIAs, has been tweaking Bernhardt’s ADVs, written supervisory procedures and marketing materials ever since.  Read More

With the surge of new regulatory acts and FINRA tightening its belt, broker dealers and RIAs alike are feeling the pressure to stay on the “straight and narrow.” Firms must invest more time, money, and resources in their back office on compliance and oversight. With the added expense, some broker dealers are walking a fine line between being profitable and being in the red. Higher payout is a constant subject that many advisors we speak with are talking about. How and where are these broker dealers generating revenue if they are paying up to a 95% payout?  Is it worth sacrificing a few percent to be at a firm that doesn’t have the necessary resources to adequately supervise your business?   Is the hybrid truly the perfect platform?

By way of conversations with past and current candidates (producing FAs, RIAs, and IARs of RIAs) there are three consistent reasons that prompt financial advisors to consider the RIA model.  The first, and most obvious, is the natural progression and logical next step to truly brand and own their business.  The second being compliance and oversight, which is ironically the very same reason for hesitation in making the move to the RIA model. And the third reason simply being that advisors do not want to be tied to a product or proprietary platform.  Read More

Your ADV 2A and 2B Must Be Mailed to All Existing Clients the First Year !!

You have diligently read all about the new format for the ADV Part 2A (Brochure) and 2B (Brochure Supplement), and the delivery requirements.  Right about now, you may be putting the finishing touches on your new Brochure and Brochure Supplement.  You may be all set to mail out your Summary of Material Changes in lieu of the Brochure itself.  But STOP and read this important missive about the transition rule.

For the first year amendment (2011) on the new format you must deliver to each of your existing clients your current Brochure (ADV 2A) and current Brochure Supplement(s) (ADV 2B).  The Summary of Material Changes will not apply to this first year revised format.

The 2011 mailing is due within 60 days after the date you are required to file your annual updating amendment.  Thus, for 12/31 Fiscal Year End filers, the annual updating amendment on IARD is due no later than March 31… and you have until May 30 to get your mailing out to clients.  Read More

In the aftermath of 9/11, the SEC and FINRA (then known as NASD) approved rules requiring RIAs and BDs to have a Business Continuity Plan in case of a major disaster.  How will you get back up and running if your office becomes uninhabitable… your files disappear… your staff can’t get to work… your phone lines are down…?  The Business Continuity Plan addresses events that could cause a significant business disruption and how the business will regain functionality within the shortest possible time span.

On an August day in 2003, the East Coast experienced a power outage.  Everyone at the time realized that there was a “problem.”  But late that afternoon around 4:00 pm, when power began to flicker in New York, few people understood or even imagined the magnitude of the problem, and even fewer were prepared to call it to the level of a disaster and to implement any sort of response.  Read More