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6 practical tips to help your team prepare for an SEC exam

Submitted by Marc.Jones on April 15, 2019
Advisors prepare for an SEC exam

6 practical tips to help your team prepare for an SEC exam

Legal and compliance pro Michelle Jacko offers expert insights to help you prepare your firm for an SEC exam.

In an increasingly tough and ever-changing regulatory environment, it’s critical that advisors are proactive about keeping up with the latest regulations, from anticipating their implications for real-world scenarios to understanding how to meet the expectations of SEC examiners.

“The regulatory environment has never been tougher than it is today,” says Michelle Jacko, a consultant to investment advisors on issues related to corporate and compliance risk management. As the CEO of Core Compliance and Legal Services and the Jacko Law Group, she knows the types of questions that come up and what SEC examiners expect: “The level of detail the staff is looking for is really pretty amazing,” she says. 

How regulators evaluate sales practices
In evaluating sales practices, SEC examiners focus on what advisors are promising and disclosing throughout the entire client experience and how their communications align with what they are delivering to their end-clients. This includes:

  • Documents sent to prospective clients
  • Advisory contracts
  • Client objectives
  • Financial plan data
  • Trusted contact information
  • Education and communications that advisors provide to clients about working with their firms

With examiners arriving at the office—and a process that can span weeks—an SEC exam can be nerve-wracking for any firm. To mitigate risk, Jacko recommends taking the time to prep your team. 

One critical step: Establish the fact that your chief compliance officer or a compliance representative must be present at every staff interview. Jacko even suggests adding this stipulation to your policies and procedures. Most of the questions SEC examiners ask are compliance related, so it’s critical to have someone who understands the compliance world in the room.

Reducing uncertainty for your team can help them understand their own roles and responsibilities, alleviate exam anxieties, and ultimately protect your clients. Jacko offers six tips to help advisors and their firms prepare for routine exams, sweep exams, and formal regulatory investigations.

Tips on how to prepare for an exam

  1. Prepare employees for interacting with regulators. This could include conducting mock interviews; revising policies, procedures, and client disclosures such as Form ADV; preparing to discuss exception reports and supervisor controls; and reinforcing the expectation that everyone should always be honest and forthcoming with SEC staff. 
  2. Explain to management and key personnel what to expect from the exam. Establish who is the best contact person for gathering information and documents in each business area, and ensure they’re prepared.
  3. Be proactive, not reactive. Prepare what Jacko calls an “opening ceremonies” presentation to set the stage for examiners. “If you can define, ‘Here’s who we are, here’s what we do, and here’s what we don’t do,’ you will have a completely different examination experience,” she says.
  4. Inform your staff. Make sure everyone knows who the firm’s primary point person is and who needs to be present for interviews and demonstrations (in addition to your chief compliance officer or compliance representative, who should be present for every staff interview).
  5. Make duplicate copies of documents. Be sure to keep copies of any documents you produce for the examination so that you have them on hand for any subsequent requests from examiners.
  6. Treat the examiners professionally. Be responsive to examiners’ questions and accurate to the best of your knowledge—don’t speculate or volunteer information. 

Can you answer these questions?

Find more specifics on the kinds of questions investigators are asking, five key topics they may cover, and the documents they could request.

Review potential exam questions and prep tips

Success starts with preparation

When SEC examiners knock, you want to be ready. Whether you’re a chief compliance officer or an associate financial planner, you have a role in ensuring that your firm knows and conforms to the latest industry compliance standards and best practices. As with any examination, success favors the prepared.

About Michelle Jacko

Michelle Jacko is CEO of Core Compliance and Legal Services and the Jacko Law Group. She specializes in investment advisory and broker-dealer firm formation, hedge and private fund development, mergers and acquisitions, transition risks, and investment counsel on regulatory compliance and securities law. Jacko is a frequent presenter at industry conferences including IMPACT®.

We hope you found these pointers valuable in ensuring that your firm is ready for an SEC exam. Here’s what to do next to prepare your team:

If you’re thinking about becoming an independent advisor, consider a custodian that invests in your success. Contact us to learn more about the benefits of a custodial relationship with Schwab.

 


Based on “How to Prepare for an SEC Exam” presented by Michelle Jacko at the IMPACT® conference in Chicago, Illinois, October 2018.
The services and/or opinions of the authors listed in this publication are not and should not be construed as a recommendation, endorsement, or sponsorship by Charles Schwab & Co., Inc. or any of its officers, directors, or employees. The authors and firms are independent and not affiliated with or employees of Schwab. You must decide on the appropriateness of the content for you or your firm. Schwab does not supervise these authors and/or firms and takes no responsibility to monitor the advice or consultation they provide to you. 
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