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Books & Records
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Registered Reps With Their Own Independent RIA Must Keep Their Own Email And Social Media Archives In Addition To Their Broker-Dealer's Records |
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Wednesday, June 06, 2012 18:17
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Tags: breakaway brokers | broker-dealers | compliance | FINRA | sec | Social Media Dually-registered investment advisor representatives with their own RIA must keep their own social media and email archives. Even if your broker-dealer is keeping social and email archives for you, you must keep your own archives of these communications if you own an RIA independent of your BD.
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If you are an IA rep affiliated with a broker-dealer’s RIA, which is sometimes called a corporate RIA, then the BD can keep these records on your behalf. However, if you are an IA rep at an RIA that you own, then you must keep your own archive of written communications and advertising related your investment advice activities. Relying on your BD’s email and social media archiving system is not enough.
The RIA recordkeeping issue came up at a FINRA conference a couple of weeks ago. Julie Riewe, an assistant director in the asset management unit of the SEC enforcement division, told the audience that registered reps with their own RIAs were responsible for fulfilling the RIA recordkeeping requirements on social media even if their BDs are keeping those records.
Craig Brauff, founder and CEO of Erado Message Control Solutions, attended the session where Riewe explained the rules and told me about Riewe’s comments, and I spent some time this week trying to track down a regulator who would go on the record verifying what Riewe said. SEC officials would only speak on background on the issue, however, in keeping with the agency’s history of not speaking about the specifics of how RIAs fulfill their obligations under the law.
If a dually registered advisor with his own RIA is relying on a BD’s email and social archiving system, the RIA is still obliged to maintain those email and social media records. If the BD were to close its doors, the RIA would still be responsible for providing emails and social media communication related to the RIA activities.
Some BDs could work out an arrangement with their registered reps where they would contractually provide an independent RIA with its archives on a semi-annual or annual basis, thus enabling the RIA to fulfill its recordkeeping requirement. If not, an RIA will probably want to separately keep an archive of its investment advice related social and email communications.
There are many ways for dually-registered RIAs to fulfill their recordkeeping requirements. They could, for instance, establish a separate email account at Google or someplace else and always use that account for investment advice communications, or you can print all RIA-related email and social communications. The possible solutions are many, which is why the SEC rarely speaks on the record about fulfilling the requirements. As a practical matter, however, most dually registered RIAs will likely want to use a dedicated email and social compliance solution because keeping separate email accounts or printing can be cumbersome, time-consuming, and cause confusion.
Dually-registered advisors are those who are registered reps licensed to sell securities and who are also investment advisor reps affiliated with an RIA. They are regulated under two different regulatory regimes: RIAs are regulated under rules flowing from the Investment Advisers Act of 1940, while registered reps are regulated under the Securities Exchange Act of 1934.
Dually registered advisors, also sometimes called “hybrids,” have become much more common in recent years because most brokers leaving wirehouses become IA reps and retain their securities sales licenses in order to continue to collect commissions and 12b-1 fees.
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Ernst & Young Survey Discloses Willingness Of CFOs To Take Bribes |
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Wednesday, May 23, 2012 12:52
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Tags: Due Diligence | fraud | profession
Surprising and disappointing results came from Ernst & Young’s annual and recently conducted global fraud survey. It found that 15% of chief financial officers (CFOs) across the globe would pay bribes to keep business from going out the door. This is up from 9% the year before. Five percent also said they would be willing to misstate financial results on company reports in exchange for side money. This Website Is For Financial Professionals Only
The fact that more CFOs are willing to do this during troubled economic times is not conducive to building trust among the investing public. Over the 43 countries interviewed, over 1700 executives are tired of having to deal with compliance requirements designed to reduce fraud.
Unethical conduct often goes unaddressed despite messages from the C-suite that it will not be tolerated. Granted, many of the cases prosecuted in the US involve external third parties. The surprising factor is that companies hiring the third parties fail to do adequate due diligence and, therefore, end up sullying their reputations or becoming involved in legal proceedings.
The need for ethical practices from a code-of-honor perspective is not determined by the health of the economy or the capital markets. In fact, the health of the economy and the capital markets may be led by the level of fiduciary practice by those participating in it.
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Disputes Over Axys Performance Numbers No Excuse For Fudging Client Reports, SEC Says |
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Monday, January 09, 2012 13:03
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Tags: client communications | RIA compliance A Connecticut advisor has been barred from the industry and fined $60,000 for what the SEC says amounts to doctoring his clients' performance reports.
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Michael Pelosi, formerly of Halsey Associates in New Haven, claims that glitches in the firm's Axys accounting system caused discrepancies when it came to reconciling his clients' portfolios with data from Schwab.
He says the errors forced him to "manually calculate returns for legitimate purposes," if, for example, the system returned an N/A or zero on some assets.
Unfortunately for him, the firm's assistants noticed that his client letters didn't match what Axys was telling them were the numbers of record, so they eventually confronted management.
Pelosi was fired, taking many of his clients with him. They seemed happy enough, but the SEC points out that roughly 84% of them thought he was earning them significantly higher results than they were actually getting.
The judge didn't find his justifications convincing -- if anything, the multiple explanations seemed insincere. As a result, he's been banned from the business and fined $60,000.
There's a great lesson in compliance here. Even if the numbers look wrong, keep detailed notes on the apparent errors -- but trust the system until someone takes a look.
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It's Official: The SEC Is Checking ADV Claims And Punishing "Creative" Errors |
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Friday, December 30, 2011 14:15
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Tags: sec Yes, the SEC really is reading Form ADV disclosures now and comparing them to reality. One firm is currently facing a cease-and-desist order after allegedly inflating its AUM by several orders of magnitude.
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Calhoun Asset Management got into the hedge fund business back in 2006, claiming that its advisory assets had surged from a healthy $27 million in 1999 to over $200 million.
Unfortunately, the SEC can't find any record of the Illinois firm ever running more than $3 million during that time period.
Likewise, by 2009 Calhoun claimed that its AUM was up around $80 million. It was maybe in the $7 million range.
As the SEC complaint points out, Calhoun principal Krista Ward "herself completed and electronically signed" the ADV forms throughout this period for an affiliated firm, Skore Financial Management -- and the figures look equally inflated.
The regulators have other problems with this firm, but one thing is clear: they're putting their money where their mouth is and are finally fact-checking disclosures.
For those of us who thought they were doing it all along, it's a little bittersweet. But late is better than never.
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SEC Vows Again To Get Tough On ADV Frauds |
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Thursday, December 08, 2011 13:34
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Tags: sec The SEC must have been stung by accusations that they're not doing enough to keep advisors in line. They're actually going to start checking form ADV statements for errors and lies.
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It's odd to hear that Robert Khuzami, head of the SEC's enforcement division, is saying that his team is "reviewing registration documents" now.
He's been saying it for weeks.
The implication is that this is something new and revolutionary for the SEC. I applaud them for anything they can do to make their processes more efficient and use their resources in a smarter way.
But I thought they were already doing more than scan ADV forms and file them in the database.
Far from creating confidence, this is actually an ominous development. What else did the public, law makers, and advisors assume the SEC was doing all along -- but they're only bragging about putting in place now?
Otherwise, why were advisors filing all that paperwork all those years in the first place?
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