Switch To State Regulation May Be The Closest Thing To An Audit Some RIAs Have Ever Experienced

Wednesday, November 30, 2011 07:35
Switch To State Regulation May Be The Closest Thing To An Audit Some RIAs Have Ever Experienced

Tags: Dodd-Frank | sec

The announcement that state regulators have announced coordinated reviews for the 3,200 advisory firms they are taking over from the SEC points out an overlooked irony in the "switch" process.

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The SEC is currently so slow that advisors at this level can expect to see an examiner every 5 to 14 years.


As a result, those that have been around for under a decade have probably never been audited. Their books and business practices are a mystery. 


Unless they've gotten customer complaints requiring review, they've stayed under the radar.


And given the amount of change the industry has experienced, a decade is a very long time.


The process of moving to state regulation will at least trigger a review of their documents -- maybe for the first time ever.


As the North American Securities Administrators Association puts it, "firms switching to state regulation for the first time can expect thorough inspections generally on a more frequent basis than they may have had experienced before."


They've agreed to work together to make the process easier for advisors who operate in two or more states, which is fine.


A recent clean bill of health can be something advisors should feel proud to display to clients and prospects. If your firm is getting an SEC or state review, let your clients know how it goes.


If it's bad news, they'll have to find out anyway.


And if it's good news, having that documentation sets you apart from all the firms that nobody has really scrutinized.


It makes clients and prospects alike feel safe. It's an objective sign that they can trust what you say.




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