It’s inevitable: your RIA firm will be audited. The SEC and state regulators have been steadily increasing the number of RIA audits each year, and if your firm hasn’t been visited yet, it’s only a matter of time.
For new RIAs and investment firms, the word “audit” is probably one of the most alarming you can hear. But with the right tools to help you manage compliance, it doesn’t have to be a painful or frightening ordeal. Preparation is the key to a smooth, streamlined audit, and that preparation should start long before the inspection begins.
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You will either be audited at random or for cause, due to a complaint to the SEC or state regulators. You may or may not receive notice of the audit. If you do receive notice, that notice may be accompanied by a document request list.
Your auditors may offer an optional entrance interview in which they explain the reason for their visit and request specific documents. Your CCO or someone supporting your CCO should retrieve the documents and provide copies that the auditors may take with them.
Once the auditors have gathered all the information they need, they may conduct an exit interview with you before they leave. Most often, this is a chance to go over their preliminary findings with you. The interview may give you an idea of what to expect from any potential deficiency letter. You should be upfront and engaged in this process and be willing to clear up any deficiencies that come to light.
Investing in a turnkey all-in-one compliance software package like SmartRIA is a great first step toward 24/7 audit readiness. But there are other preparations you can and should make to ease the process so that when your audit comes, it interferes with your business as little as possible.
First, ensure that you and your CCO are informed about pertinent mandates from the SEC, state regulators, and Department of Labor. Stay updated on how compliance is changing and what auditors are looking for. The North American Securities Administrators Association published this detailed record of 2015’s state-regulated RIA audits, complete with a most frequent deficiencies and a list of best practices.
Talk to your staff ahead of time about audit etiquette and reinforce a culture of compliance from top to bottom. They should welcome the auditors and comply with any requests, but leave them alone to work. Designate a point person (probably your CCO) to serve as the auditors’ direct contact, and set aside a quiet place for the auditors to carry out their tasks.
Be sure that commonly requested documents are readily accessible at all times. These documents include ledgers, client records, advertising, bills, statements, and more.
SmartRIA keeps common audit documents easily accessible by your CCO and even automatically alerts you if it detects potential audit deficiencies. Your SmartRIA software will help to keep you audit-ready at all times, leaving you free to focus on managing and growing your firm.