Page 50 - Investment Advisor - Jan/Feb 2021

THE COMPLIANCE COACH

By Thomas D. Giachetti

Steps to Prepare for 2021 Compliance Issues

Perspective is key to the new year, but stay on guard with regulators.

n New Year’s Eve, I looked back tion for the reader to address any ques-
at a tumultuous 2020 and tried tions regarding the disclosed conflict
Oto put things in perspective, directly with the firm’s chief compliance
and then look forward. In March, what officer;
appeared to be the start of a global mar- • Document. During an examination,
ket disaster turned into a very good year the SEC will want to see confirmation.
for the vast majority of advisory firms. Unless you can show the SEC you did it,
Technology was the biggest bless- it will assume (allege) you didn’t.
ing for advisory firms, permitting them I like to make it easy for our advi-
to work almost seamlessly during the sors, constructing a written Protocol to
global pandemic. However, we can’t for- be followed on an ongoing basis. The
get that countless others haven’t been purpose of the Protocol is to make clear
as fortunate, and may not be so in the for the firm, and to the Commission,
foreseeable future. do so is prior to receipt of a Deficiency what the firm, based upon its actual
For those who lost loved ones and letter. Rebut as the exam is in progress; in operations, does and/or considers at the
friends, an up market was no consola- writing, if necessary. Use the Exit inter- commencement of a new client engage-
tion. At the end of the day, unless those view as your opportunity to understand ment, the hiring of a new employee,
around you are safe and healthy, little the Commission’s issues and reasoning. the engagement of a new vendor, and
much else matters. Let’s be guarded and Don’t hesitate to respectfully chal- regularly on a daily, weekly, monthly,
cautious, while looking forward to a lenge exit interview findings, in writing, quarterly, annual and ongoing basis.
safer, more secure, 2021. swiftly thereafter. But, make sure you If the firm follows (and updates) the
With the above framework, what have good counsel. Know why and how Protocol, as necessary, it will not miss a
should advisors be thinking about in to address; compliance task, and will be prepared to
2021? Most important, remain guard- • Be proactive. Whether right or demonstrate the completion thereof; and,
ed: The Securities and Exchange wrong, fair or otherwise, based in rule • Educate. Compliance is only
Commission continues to conduct or not, you can and should be ready as good as the eyes and ears of your
examinations at a fast pace, and those for examination issues. Consider a real employees. Educate them as to impor-
continue to be more aggressive. (attorney-client privileged) compli- tant issues. Remind them that there is
It seems the new push is: How can we ance review to address what issues the never a stupid question. Maintain an
find a way for you to reimburse clients! Commission will most likely raise based open-door policy.
Many Deficiency letters have taken on a upon your advisory operations. No blun- In addition to an annual compliance
more accusatory tone, citing violations derbuss, one size-fits-nobody, approach. meeting, schedule regular shorter
where no such rule or requirement cur- This is not science. If it was, I would meetings — 12 months is a long com-
rently exists. Quick to allege breach of be underqualified. Within an hour of pliance year.
fiduciary duty. meeting a new firm, I can generally
What is an advisor to do? Some pinpoint the focus of the Commission’s Thomas D. Giachetti is chairman of the
thoughts: examination issues, and then prepare Investment Management and Securities Practice
• Push back. But do this tactfully, the firm to address them; Group of Stark & Stark, a law firm with offices
relative to findings and/or allegations • Disclose. Clear and conspicuous in Princeton, New York and Philadelphia that
that you believe to be incorrect, unfair disclosure is an advisor’s best friend. represents investment advisors, financial
or unjust. The SEC makes mistakes, and Every advisor has actual or potential planners, BDs, CPA firms, registered reps
at times, will reconsider its conclusions conflict(s), disclose them. and investment companies, and is a regular FotoIdee/Shutterstock
or required actions. I like to do so boldly, and at the end of contributor to Investment Advisor. He can be
However, the optimal time to initially each such disclosure, end with an invita- reached at [email protected].

48 INVESTMENT ADVISOR JANUARY/FEBRUARY 2021 | ThinkAdvisor.com