Last year was full of changes for the investment advisory community. What lies ahead for advisors to do or consider in 2012?
1. Has the firm finalized, filed and provided to its clients its initial written disclosure statement on the new Form 2A?
2. Does the firm have the qualifying assets needed to remain SEC-registered? If not, is it prepared to transition to state registration by filing a Part 1 amendment by March 30, 2012, and transition registration to all required states by June 28, 2012? Remember: Assets over which you do not maintain trading authority generally do not qualify as assets under management on Part 1 of Form ADV, including assets allocated to separate account managers for which you do not retain authority to hire or fire on behalf of the client.
3. Has the firm updated its policies and procedures to reflect substantive regulatory changes resulting from Dodd-Frank? The SEC is becoming adversarial with advisors who fail to update their written policies.
4. Do the firm's policies and procedures documents reflect the firm's operations, or have they been purchased from a "one size fits none" consulting firm? If the latter, the firm must review and revise the documents. That is not to say that the firm should not engage or disengage such providers, but only that it requires some additional review and work internally to ensure that they reflect the firm's practices.
5. Is the firm adequately prepared for a regulatory exam? The scope of the regulatory examination process continues to become increasingly more complex. However, if the firm is adequately prepared to answer all of the issues that will be raised by the SEC during the examination process, the exam should not be painful. Please continue to be mindful that issues uncovered during mock exams conducted by non-law firms are discoverable by regulators and plaintiff's lawyers, especially any written reports regarding same.
