Remember that whispered voice in Field of Dreams. . . “If you build it, he will come?” Well, the SEC has its own version . . . “if you put it in your manual, we will make you prove you are doing it.” Not quite as catchy, but for SEC-registered investment advisers, it can be just as spine-tingling.
In a recent audit, the SEC’s first follow up request had a slew of requests all along the lines of:
“Please provide the Staff with documentation demonstrating how the Adviser systematically reviews client accounts to ensure that all investment and associated risks are suitable for clients as described on page 37 of the Compliance Manual.”
Please provide the Staff with documentation demonstrating how the Adviser ensures that it does not maintain excessive cash balances for any client as described on page 37 of the Compliance Manual.“
“Please provide the Staff with documentation demonstrating the Adviser’s periodic performance comparisons of accounts with like objectives to determine consistency as described on page 37 of the Compliance Manual.”
“Please provide the Staff with documentation demonstrating the CCO’s periodic review of the account history and history of contact with Senior Clients as described on page 43 of the Compliance Manual.”
“Please provide the Staff with documentation demonstrating the periodic review ofbest execution by the CCO during the Examination Period as described on page 51of the Compliance Manual.”
“Please provide the Staff with documentation demonstrating the CCO’s review of mutual funds’ fees as described on page 52 of the Compliance Manual.”
So if it is in your manual, you better make sure your advisory firm is doing it and, if not, determine whether it can come out because the SEC will hold your feet to the fire and want proof that it is indeed being done.