CCO Series - Trade Errors

What You Need to Know

In developing policies and procedures for a Registered Investment Advisor ("RIA") a topic that must be addressed is trade errors. To uphold the fiduciary duty owed to clients of your RIA, your policies and procedures must cover how you handle errors that may occur when trading in a client's account. If a trading error occurs in a client's account managed by an RIA there are critical response items to consider in order to uphold your fiduciary duty. Implementing these compliance components can demonstrate to a regulator that you are satisfying your regulatory requirements.

What is a Trade Error?

The most common trade error is buying the wrong security or the wrong amount. Here are a few other examples of events that are considered trade errors:

• Trading in the wrong client account
• Trading in the wrong direction (buy vs. sell)
• Trading at the wrong price (limit orders, etc)
• Incorrect block trade allocation
• Violation of client account restriction (tobacco, oil, military)
• Violation of client account suitability (aggressive vs conservative)
• Delayed execution of trade instructions
• Duplicate execution of trade instructions

How to Handle Trade Errors

Even if the error does not fit into one of these examples you must discuss any potential or actual trade errors with your CCO to ensure compliance. CCOs should document the event within their trade error log and save all related documentation for the RIA's books and records. Consider communicating with the clients as needed to explain events in their statements or other irregular trading activity. Most trade errors can be resolved prior to settlement by the custodian if they are promptly discovered and communicated.

Reviewing Policies and Procedures

Advisors must ensure their policies and procedures require the disclosure of trade errors to the CCO and that trade errors are documented in the Advisor's trade error log. The log must also include any related backup or other documentation, that the trade errors are resolved in a way that makes the client whole and absolves the client of consequences of the Advisor's error. Additionally, trade errors should be reviewed at least annually by the CCO or delegate to ensure that any reasonable changes to the Advisor's business practices that could eliminate future errors are considered for implementation. During this annual review, the CCO or delegate must also update the Advisor's trade error policy as needed to ensure it accurately reflects how trade errors are resolved.

What are the Next Steps for a CCO?

Sample review transactions from your firm’s trading blotter to ensure trades are placed accurately in accordance with documentation and client objectives. Ensure any and all trade errors are documented in your firm's trade error log. Confirm that trade error files maintain documentation related to the specifics of the trade error as well as documentation substantiating the resolution. Consider reasonable changes to business practices that could eliminate the potential for future errors. Finally, remain aware of any changes to trade error policies and procedures that may be imposed by your custodian and ensure your internal policies remain accurate. Ensure proper communication of trade error policies and procedure to supervised persons.

The AdvisorAssist CCO Series is a collection of blog posts that cover each of the elements of your RIA's compliance program. Each post will provide an overview of one compliance topic, including our insights on how regulators view each topic as well as some practical steps to help Chief Compliance Officers address this topic. As always, we would welcome your comments and thoughts.

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CCO Series - Client Suitability

As a fiduciary, an RIA firm is required to make investment decisions in the best interests of its clients. When making decisions regarding the investment options for accounts an RIA firm needs to be able to defend such decisions as being reasonably suitable to the goals and needs of its beneficial owners. Regulators will seek to ensure that decisions made by the firm during the course of providing its services primarily benefit the client and are suitable for a particular account's objectives. Documentation that define a fund's investment objectives or a model portfolio strategy will be compared against the trading history and the decisions made for clients to validate whether or not the firm is making suitable investment decisions when providing its services.

RIA Client Suitability In a Nutshell

Client suitability starts with information about how the RIA firm's investment managers will provide its advisory services and the information about the client or fund that will be relied upon to guide those decisions. For a typical retail RIA situation, this may include your client profile, risk tolerance questionnaire, investment policy statement (IPS), or client notes capturing similar information. For structured investment products this may include the operating agreements, offering documents, and similar information about the funds, parties and entities involved. As these documents are executed, modified, updated or amended the advisor should keep and maintain this additional documentation for their firm's books and records.

Risks related to strategies used by an RIA firm must be disclosed to clients through Form ADV. Specifically in Form ADV Part 2A, the Disclosure Brochure, Item 8 Methods of Analysis, Investment Strategies and Risk of Loss should contain information regarding how the firm's investment management services will be applied to the client's accounts and the potential losses that can occur due to the way the firm will invest the client's assets. It is important for firms to review these disclosures and ensure they accurately reflect the firm's investment methods and cover the risks related to the firm's advisory services.

Confirming Suitability

After collecting a client's information, having them sign an advisory agreement and providing a copy of your ADV and other new client paperwork, suitability becomes a compliance matter for the relationship as you move to digest the information and start making investment decisions for the client's account(s). While your documentation may tell the client to notify your firm of any changes to their profile, goals or objectives, every RIA firm still has an obligation to reach out to the client and confirm the information you have is still accurate and that ultimately to confirm your current understanding of what is suitable for that client.

Confirming suitability can take the shape of having the client complete a new risk questionnaire, sign a new IPS, or to have a meeting with the client where you discuss the management of their account and address suitability matters. Documenting this confirmation is critical to the firm's books and records for compliance purposes on this topic, and can take the form of client notes indicating suitability was discussed and the results of that discussion, or the updated formal documents such as the questionnaire or IPS. For fund managers, this activity means ensuring that the decisions being made for the fund are reasonably accomplishing the objectives of the fund as described in its documentation and ensuring that due diligence documentation is retained for various non-public investments. By having this documentation in your firm's books and records you can demonstrate that your firm has upheld their fiduciary duty when making investment decisions for its various clients.

Through the Regulator's Eyes

Regulators expect RIA firms to maintain documentation on each advisory client to support the investment decisions made for their account(s). During an examination, regulators will typically ask firms to provide their risk questionnaires or similar documents used to obtain information about their clients, and will also request information about trades in client accounts, and will reconcile the two to ensure that decisions made for clients are suitable and that there is a rational basis between the documentation, analysis, and investments. Further, regulators will review the information in your firm's disclosure brochure to reconcile to the types of investments to ensure that the strategies and risks are properly and fully disclosed to clients.

CCO Best Practices

Conduct a random sampling review of client files to verify that suitability is appropriately documented. Run a comparison between the client's trading history and the suitability documented to ensure investment decisions are in line with investment objectives. Validate that the last outreach attempt to each client is within one year. Additionally, review your firm’s client intake/onboarding and ongoing review process to ensure you are capturing adequate information to make, or continue to make, appropriate investment decisions in client accounts and provide advice that is in the client’s best interest.

The AdvisorAssist CCO Series is a collection of blog posts that cover each of the elements of your RIA's compliance program. Each post will provide an overview of one compliance topic, including our insights on how regulators view each topic as well as some practical steps to help Chief Compliance Officers address this topic. As always, we would welcome your comments and thoughts.

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The AdvisorAssist CCO Series: Books & Records

Books and records compliance for registered investment advisers is one of those activities that can be as simple or as difficult as one chooses to make it.

Admittedly, it does take some time and know-how to understand exactly must be maintained. But if you think about it, each of these records are really just outputted from a well-managed firm (e.g. financial statements, communication tracking, version-controlled document storage). By and large, each requirement has a purpose behind it that will help you manage your firm in a more effective and risk-managed manner.

So if you approach records retention not as a compliance requirement but as a result of sound business management, you will be amazed by how it can be simplified, while at the same time improving the effectiveness of how your firm is run.

Investment Advisor Books and Records In a Nutshell

Investment advisors are expected to make and keep true, accurate and current books and records relating to its investment advisory business. The overarching objective behind these requirements is the protection of your clients and the general public. Regulators expect advisors to be able to produce any information that may be used to substantiate their finances, support the decisions behind all of the decisions they make on behalf of their clients, and validate that they are always adhering to their fiduciary duty.

The records that advisors must maintain fall into these general categories: Compliance Program, Client Management, Trading, Marketing, and Business Management. The majority of these must be maintained by all advisors, but there are a number that depends on your specific business practices (e.g. soft dollar usage, proxy voting, custody, government-related clients, use of solicitors).
For reference, here is a link for the complete books and records requirements for investment advisors. Click Here.

Most records have a prescribed retention duration of five years (the most recent two of which must be on-site or accessible from your office). Some records must be retained for longer periods of time, or indefinitely. For example, an advertisement for a one-time event must be kept for 5 years from the date of the event (it's last use) and a Client Agreement (while the client is active) must be kept as long as you have this client under this agreement. And then you must keep for at least 5 more years.

Thankfully, regulators allow for records to be maintained electronically using cloud-based storage. When doing so, advisors must demonstrate their ability to reasonably safeguard them from loss, alteration or destruction and to prevent unauthorized access from individuals outside your firm. Scanning and storing hard copies is fine as well, as long you can attest that the retrieved record is legible, complete and true.

Through the Regulator's Eyes

It's helpful to keep in mind that the purpose of advisor records retention is to protect the general public, including your clients. Regulators expect you to be able to produce any information that may be used to substantiate your finances, support the decisions made on behalf of your clients, and validate that you are always adhering to your fiduciary duty.

Thinking through an example of a client complaint sometimes helps reveal the regulators' logic. Regulators are obliged to respond to every complaint lodged against an advisor. When doing so, they will likely want to see the documentation of everything that client received from you (historical versions of your ADV, marketing collateral), nature of the relationship (client agreement), any interim communications (client communications log), and any supporting documentation for your investment decisions.

A complete set of records will allow you to produce this history quickly and efficiently so that the regulator can come to a swift resolution.

State regulators have stepped up "books and records" examinations, especially with newly-registered advisors. Their objective is to assess not only the ability to produce these records but also the business practices that surround them. If they perceive sloppiness or indifference, they come back for a more complete examination.

CCO Best Practices

• Create an "inventory list" that includes all books and records requirements. Then, mark off those which pertain to your particular business model and practices. For example, your inventory list will include proxy voting records, but if you don't vote proxies, mark it as "NA". This way you are demonstrating that you understand that proxy voting records should be maintained, but since your agreements and ADV state that you don't, this doesn't apply.
• Don't approach records retention as a "compliance chore". The path of least resistance in the long term is to incorporate these responsibilities into your everyday activities. For instance, your client on-boarding process should include each of the activities and documents needed for compliance retention. If you are using your CRM religiously, you can be confident that all client communications are archived in an easily accessible manner as well.
• Be wary of over-reliance on third-party generated records. Your portfolio management system may not store all of the order ticket and confirmation data you need to pass muster with a regulator.
• Remain mindful of regulatory "hot spots". Hot spots include advertising (review and archiving), email/social media archiving, security of electronic storage, and documented investment decision making.
• Pay particular attention to your firm's "high risk" areas. These may include trade allocation procedures, social media advertising, soft dollars, or any area where there is a disclosed conflict of interest.
• Conduct (and document) annual due diligence on cloud storage vendors to ensure that they have appropriate physical, electronic and procedural safeguards in place to secure your data.

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Three Actionable Tips to Become SEC Examination Ready

Over the summer, we heard rumblings that the SEC was conducting unannounced examinations on RIAs in the Boston area. While we have certainly seen a significant uptick in the examinations of never before examined advisors, none of which have been unannounced. Regardless if it is a routine exam or unannounced, it is best practice for advisors to stay examination ready regardless of location or if registered with the SEC or applicable State(s). As we preach to our clients, make sure you take proactive measures to become “examination ready”. Don’t wait until the SEC or a state level examiner comes knocking at your door!

Here are three (3) actionable tips to consider:

1. Customize your Compliance Program

We see far too many advisors that think they are “plain vanilla” and therefore think they can get by with a generic compliance manual (Wrong!). Most firms do not create their compliance manual from a blank page. They start with a model document to address the broad regulatory structure and industry requirements. Although, a model document is a good starting point, it does not amount to a finished product. RIAs need to know that a one-size-fits-all compliance manual does not exist and no consultant or legal resource knows the firm better than the people actually operating it on a daily basis. The creation of a firm specific compliance manual should include three broad steps:

• Review the model document for content and applicability (ask questions).
• Customize the model document to be firm specific, which means customize language specific to your business practice and make sure to remove language that is not relevant to your firm. Then operate your firm in a manner that is consistent with your compliance manual.
• Regularly review, and update your compliance manual as the dynamics of the business evolve and the regulatory environment changes. A compliance manual should never be considered a final document but a current draft of a “living document”.

Always remember that SEC or State regulators expect there to be evidence to demonstrate that policies and procedures are being implemented. Simply put, if there is no evidence, it did not happen.

2. Complete an annual review of your Policies and Procedures

On an (at least) annual basis, you should complete a review of the adequacy and effectiveness of your compliance program. Ideally, the firm should conduct risk assessments of your compliance program throughout the year to test the risk controls and identify any weaknesses. If any issues are identified, make sure to take corrective action and document, document, document! If you don’t document the steps you have taken, (*in the regulator’s eyes) it never happened!

Keep in mind that an effective compliance program should identify potential risks and mitigation opportunities. If the established controls never identify a risk or a mitigation opportunity, the controls should be evaluated and potentially revised.

3. Organize your Books and Records

During the examination process, the regulators will want to complete a sampling of your books and records. You should make sure that your books and records are maintained in an organized fashion to ensure they can be readily delivered. The examination process typically starts with a document request letter including (but not limited to):

• Financial Statements including income statements, balance sheets, and other key accounting records.
• Client Records including a full list of current and past client accounts, supporting client agreements, profiles, investment policy statements and trade data.
• Communications with existing or prospective clients including emails, advertisements, and social media accounts.
• Regulatory filings and other compliance program documents including your ADV 2A/2B, compliance manual, compliance certifications, business continuity plan, code of ethics, and cyber-security policy.

This is by no means an exhaustive list, but should get you started on the right track. If you have any additional questions, please feel free to post a comment below or send an email to info@advisorassist.com.

Contributors:

Brian Young
Dan Rome

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CCO Series: Top Regulatory Deficiencies for RIAs -- Advisory Agreements

What you need to know

Examiners will review agreements that the advisor uses for its client engagements during an examination as a standard request item. This will include a review of the agreement templates that you use for your prospective clients and a sample of agreements that your firm has executed with existing clients. In reviewing agreements examiners report finding two common deficiencies: 1) the fees are not fully disclosed in the agreement and 2) that firms do not have an executed copy of its client agreements in the advisor’s books and records.

Common Deficiency: Fees fully disclosed

The written advisory agreement must detail the relationship that the client is entering into with the advisor, including how fees are calculated and the payment methodology. The fees section of the agreement must be comprehensive to cover all fees being charged for the services, when the fees are being charged, and how they are to be paid. The information in the client agreement should also align with the general disclosure of fees made in Form ADV Part 2A Disclosure Brochure in Item 5. Any additional compensation that the firm receives in its advisory practice should also be described in Form ADV Part 2A in Item 14.

Common Deficiency: Books and records

Advisors are required to keep and maintain all written agreements (or copies thereof) entered into by the advisor with any client.¹Examiners are reporting to the North American Securities Administrators Association that advisors are not creating written agreements for all of their client relationships. They also noted that when written agreements are created, the agreements are not clearly noting, and adequately explaining, the advisory fees as described above.²

How do we avoid these deficiencies?

To avoid these deficiencies at your firm AdvisorAssist recommends the best practices of:

• Reviewing the language in your Form ADV Part 2A Disclosure Brochure to ensure that it adequately discloses for each type of fee the following:
1. How fees accrue for each service offered.
2. How fees are billed to the clients.
3. Whether the advisory fees include other fees, such as brokerage trading fees.
4. How fees are impacted by contract termination, such as a pro-rata refund if collected in advance.
5. Whether the fees represent any compensation for the sales of securities or other conflicts of interest.
• For each new client onboarded, ensure that a written agreement is executed for the services that the client will receive and the fee is consistent with Form ADV Part 2A.
• Review client agreement[s] templates and Form ADV Part 2A at least annually to ensure that the fees described are consistent and fully disclosed.

<sup>1. See 17 CFR §275.204-2(a)(10). Link. ↩
2. See North American Securities Administrators Association, “2015 Investment Adviser Coordinated Exams,”. Link. ↩</sup>

AdvisorAssist’s CCO Series: Regulatory Deficiencies for RIAs is a series of articles that will help your firm understand and avoid the most common compliance deficiencies found by regulators. Our goal is to help you increase your confidence that your firm remains “exam ready” as well as some practical steps to help Chief Compliance Officers address this topic.

Contributors:
Brendan Furey
Michael Conlon

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Analyzing the Department of Labor Fiduciary Rule

The revised Department of Labor (DOL) fiduciary rule (Rule) was published in its final form in the Federal Register and can be accessed by clicking this link. Although effective starting June 7th, 2016 the DOL has granted time for affected service providers of retirement plans to adjust to fiduciary status and partial compliance is not required until April 10, 2017 with full compliance required by January 1, 2018.

The focus here is determining if fiduciary status applies to your firm based on the advice provided to retirement plans or participants, what exemptions may apply, and what steps must be taken to maintain compliance.

Definition of Fiduciary

Under the Rule a fiduciary will now include a person providing investment advice regarding money or property within the plan for a fee or other compensation, directly or indirectly, to a plan, plan participant or beneficiary, IRA or IRA owner. Investment advice relevant to this definition include the following:

1. A recommendation as to the advisability of acquiring, holding, disposing of, or exchanging, securities or other investment property, or a recommendation as to how securities or other investment property should be invested after the securities or other investment property are rolled over, transferred, or distributed from the plan or IRA;
2. A recommendation as to the management of securities or other investment property, including, among other things, recommendations on investment policies or strategies, portfolio composition, selection of other persons to provide investment advice or investment management services, selection of investment account arrangements (e.g., brokerage versus advisory); or recommendations with respect to rollovers, transfers, or distributions from a plan or IRA, including whether, in what amount, in what form, and to what destination such a rollover, transfer, or distribution should be made; and
3. The investment advice is made, directly or indirectly (through an affiliate), by a person who:
1. Represents or acknowledges that it is acting as a fiduciary within the meaning of the ERISA or the IRS Code;
2. Renders the advice pursuant to a written or verbal agreement, arrangement, or understanding that the advice is based on the particular needs of the advice recipient; or
3. Directs the advice to a specific advice recipient or recipients regarding the advisability of a particular investment or management decision with respect to securities or other investment property of the plan or IRA.

The definition goes on to explain what constitutes a “recommendation” and what may be excluded from that definition, such as providing certain services or information regarding the plan or IRA, such as marketing or making available to a plan fiduciary a platform or similar mechanism where the plan fiduciary may select or monitor investment alternatives; identifying investment alternatives that meet objective criteria specified by the plan fiduciary; providing objective financial data and comparisons with independent benchmarks to the plan fiduciary.

The definition also clarifies that an advisor is not a fiduciary when providing advice to an independent person who is a fiduciary of a plan or IRA, if that fiduciary is a bank, insurance carrier, registered investment adviser, broker-dealer, or other person that holds or has assets under management of at least $50 million. This means the old definition has been expanded to focus on advice given to IRA owners and people rolling over their employer sponsored plan (e.g., 401(k) account) into an IRA. Finally, education and general marketing materials that a reasonable person would not view as investment recommendations are not included in the definition of retirement investment advice, so advisors may continue to provide general materials on retirement saving without triggering fiduciary duties.

As a fiduciary, an advisor must adhere to a “best interest” standard for a client, rather than a “suitability” standard for an investment product. Therefore, an advisor cannot receive fees that could be seen as creating conflicts of interest (i.e. commission or revenue-sharing), unless a qualified exemption applies.

Best Interest Contract Exemption (BICE) and Impartial Conduct Standards

This exemption, published at this link, provides relief for compensation, such as commissions and revenue sharing, that an advisor and the advisor’s employing firm might receive in connection with investment advice to retail retirement investors. The BICE requires financial institutions and advisors to acknowledge fiduciary status for itself and its advisors, adhere to basic standards of impartial conduct by giving prudent advice in the client’s best interest, avoid misleading statements, and receive only reasonable compensation. Additionally, financial institutions must adopt policies and procedures reasonably designed to mitigate any harmful impact of conflicts of interest, disclose basic information about their conflicts of interest and the cost of their advice. Level Fee fiduciaries are subject to more streamlined conditions.

Principal Transactions Exemption

The other main exemption from the Rule is the Principal Transactions Exemption, published at this link, which permits advisors to sell or purchase certain debt securities and other investments out of their own inventories to or from plans and IRA owners. The exemption applies even though this transaction results in payment to the advisor. However, similar to the BIC exemption, the advisor must adhere to Impartial Conduct Standards and disclose to the client any conflicts of interest in order to make use of the exemption.

How should a Chief Compliance Officer respond to the Rule?

In all cases, the advisor will want to retain documentation of compliance with this new rule, including contracts, policies, procedures, and disclosures, to support your Books & Record requirements. However, there are no additional record retention requirements for detailed data on inflows, outflows, holdings, and returns for retirement plan or IRA clients.

Chief Compliance Officers should review the information in their Form ADV Part 2A and client agreements to determine whether or not they are acting as a fiduciary based on the recommendations provided to clients regarding retirement plans, participants, beneficiaries or IRAs, and ensuring that their client agreements and ADV contains all disclosures required by the Rule regarding conflicts of interest and compensation arrangements, including a statement as to whether or not they are a fiduciary.

Although an RIA may not be compensated by a commission or revenue sharing, Form ADV requires disclosure to clients regarding potential conflicts and compensation arrangements. Hybrid advisors receiving commission compensation will want to ensure they are satisfying the BICE. Therefore as a best practice we recommend that even firms without commission or revenue sharing fees should provide notice to retirement clients that they are providing their services in the client's best interest to uphold their fiduciary duty and review and update disclosures of any potential conflict of interest. This will ensure that you are availing your firm of the BICE and creating a presumption of compliance with the Rule.

Contributors:
Brendan Furey
Michael Conlon

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CCO Series: Top Regulatory Deficiencies for RIAs -- Books and Records

What you need to know

Registered investment advisors are required to maintain and preserve books and records in an easily accessible place for a period of not less than five years from the end of the fiscal year during which the last entry was made on such record, the first two years in an appropriate office of the investment advisor.¹ We cover books and records compliance in more detail in a previous post.
Annually, the North American Securities Administrators Association (“NASAA”) issues a report about common deficiencies found in state coordinated investment adviser examinations.² The most common books and records deficiencies described by NASAA are lack of documentation of “recommendations made or proposed and any advice given or proposed,”³ which will include 1) the advisor’s analysis of client suitability for an investment product and 2) when acting as a fiduciary why the advice is the client’s “best interest”.

Common Deficiency: Client Suitability Records

Examiners noted the lack of documentation about the suitability of an investment product and lack of documentation that the advice is the client’s “best interest”. The mantra of an examiner is that if it is not documented then it was not done. Since July of 2012 when the FINRA suitability obligations went into effect,⁴ a major focus of the examiner’s books and records review has been on whether suitability is being properly documented in the client profile.

Common Deficiency: Focus on Fiduciaries

In addition, with the new Department of Labor fiduciary rule being published on April 8th, and effective in April 2017, examiners will be focused on reviewing suitability and “best interest” documentation. With the new fiduciary rule advisors serving clients in qualified retirement plans and IRAs will need to document how the advice is in the client’s “best interest” similar to other ERISA clients. Also, in certain cases the advisor’s client agreement may need to satisfy a Best Interest Contract Exemption pursuant to the new rule.

How do we avoid these deficiencies?

To avoid these deficiencies at your firm AdvisorAssist recommends the best practices of:

• Perform an annual review of the advisor’s books and records archive to ensure you are keeping the required documentation for the required duration.
• Preparing and maintaining a comprehensive profile on each client. This profile should be created during the onboarding of the client, confirmed with the client annually and updated as any new accounts or new information is received from the client.
• Ensure your books and records contains all necessary backup documentation in addition to the client profile as needed to support your investment recommendations or advice.
• Create and maintain Best Interest Contracts as needed for DOL-regulated transactions involving retirement plans.
• Document in the client profile why advice regarding rollovers and other major transactions are in client’s best interest. Stay up to date with Fiduciary Rule Changes by clicking this link.

<sup>1. See 17 CFR §275.204-2(e)(1). Link. ↩
2. See North American Securities Administrators Association, “2015 Investment Adviser Coordinated Exams,”. Link. ↩
3. See 17 CFR §275.204-2(a)(7). Link. ↩
4. See FINRA Regulatory Notice 11-02. Link. ↩</sup>

AdvisorAssist’s CCO Series: Regulatory Deficiencies for RIAs is a series of articles that will help your firm understand and avoid the most common compliance deficiencies found by regulators. Our goal is to help you increase your confidence that your firm remains “exam ready” as well as some practical steps to help Chief Compliance Officers address this topic.
Contributors:
Brendan Furey
Michael Conlon

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CCO Series: Top 12 Regulatory Deficiencies for RIAs -- #1: Books & Records

What You Need to Know

The most common compliance deficiency for RIA firms (impacting roughly 68% of firms) is insufficient maintenance of books and records. Under the “Books and Records Rule” there are several things that must be kept which generally fall into the following categories: Compliance Program, Client Management, Trading, Marketing, and Business Management. For the most part, these must be maintained by all advisors, but there are some requirements that depend on individual business practices, such as soft dollar usage, proxy voting, custody, use of solicitors.

For a detailed look at Books & Records requirements please click here.

For the most part, these records must be kept for a minimum of five years, the first two of which must be “readily accessible” to the advisor. Cloud storage, for example is readily accessible from the advisor’s office. Off site hard copies stored at a facility like Iron Mountain, is not. For the sake of business continuity, it is also important to keep backups of these documents off site in the event of an unexpected disaster.

Why You Should Care

Ensuring that your books and records are in order can be beneficial on several levels. Accurate books and records can validate your firm’s adherence to its fiduciary duty, support the decisions you have made on behalf of your clients, and substantiate your firm’s finances. Considering the fact that state regulators have made a point of ramping up “books and records” examinations and that they are obligated to pursue every complaint received against an advisor, diligent upkeep allows for efficient, swift resolution to future questions.

It should also be kept in mind that these requirements are in place to protect clients from fraudulent management of their assets, which can also provide protection from unwarranted scrutiny for responsibly managed firms. Highlighting this connection between compliance responsibilities and client protection has been a huge missed opportunity for RIAs historically.

Our Recommendations

To ensure that your firm is keeping up with regulatory requirements and industry best practices in this area:

• Maintain an inventory list that includes any potential requirements, and conduct periodic reviews of your books and records to ensure adherence to the proper regulations.
• Rather than viewing this regulation as a hassle, it is important to focus on the long term benefits of incorporating these responsibilities into the everyday activities of the firm. Leveraging tools such as a CRM, for example, can instill confident that things are being archived and maintained in an efficient manner.
• Remain mindful of regulatory “hot spots” that can change over time. These currently include: advertising, email/social media archiving, cybersecurity, and documented investment decision making.
  
• Conduct annual due diligence on cloud storage vendors to ensure that they have appropriate physical, electronic and procedural safeguards in place to secure your data.
  

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AdvisorAssist’s CCO Series: Top 12 Regulatory Deficiencies for RIAs is a series of articles that will help your firm understand and avoid the most common compliance deficiencies found by regulators. Our goal is to help you increase your confidence that your firm remains “exam ready.” Click here to read more posts from our CCO Series: Top 12 Regulatory Deficiencies for RIAs. We would welcome the chance to learn more about you and your firm. Click here to request an introductory call from one of our consultants.

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Google Apps update alerts: 30 GB now shared between Drive, Gmail, and Google+...

Over the coming weeks, all Google Apps users get 30 GB of unified storage to use as you like between Drive and Gmail. This replaces the current replacing the current storage of 5 GB in Drive and 25 GB in Gmail. Just as before, files created in Docs, Sheets and Slides don't count against your storage quota. Storage will also be shared with photos you upload to Google+ larger than 2048px. As a result of this change, Gmail inboxes are no longer limited to 25 GB - any additional storage can be shared and used by Gmail.

Note that use of Google's documents (spreadsheets, docs, presentations, etc. do not count against your 30BG quota. This does provide a benefit not seen in other cloud services. 

As we are strong advocates for the cloud, we remind advisors to ensure the following:

• Strong password and security management
• Obtain guidance in configuring your cloud
• Ensure laptops and mobile devices that are syncing to your cloud are secure (encrypted).

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