Monday, December 17, 2012

A White Paper to Help You with Your Annual CCO Report

As you know, regulators require each RIA to review and improve their compliance program on a continuous basis. These efforts must be documented at least annually in the form of an "Annual CCO Report".

To help you with this process, we have produced a white paper called Prevent, Detect, Correct: An Overview of Annual CCO Reports for RIAs. We hope you find this to be a useful tool for better understanding the specific elements of your annual CCO report.

Click here to download the white paper.

If we haven't already and you would like us to upload a copy of a template for you to use as a guide for your annual CCO report, please send an email to:

And we will upload a copy to your Advisor Portal.

Happy Holidays!

The AdvisorAssist Team

Sunday, December 16, 2012

FINRA Guidance on Suitability Rules

FINRA issued Regulatory Notice 12-55 in December 2012 to clarify rules regarding investor suitability for FINRA-member firms and their registered persons.

The notice states, "FINRA Rule 2111 requires, in part, that a broker-dealer or registered representative 'have a reasonable basis to believe that a recommended transaction or investment strategy involving a security or securities is suitable for the customer' based on the customer’s investment profile."

The document contains relevant Q&A regarding the definition of a customer and the scope of this rule.

Regulatory Notice 12-25 titled Additional Guidance on FINRA’s New Suitability Rule - Implementation Date: July 9, 2012 discusses the rule in detail.

AdvisorAssist Analysis:
RIAs must also take suitability serious. This is an increasing deficiency item with the regulators and found through AdvisorAssist client reviews. Documentation and routine check-ins with the client are required.

If you have any questions regarding this topic, please email us at

Texas Advisor's Licensing Revoked for False Statements

A Texas registered investment advisor had its license revoked for providing false information to the regulators in exams and filed documents. Click here for the enforcement action.

AdvisorAssist Analysis
Aside from the obvious, we post this matter to remind our clients that not only willful acts, but omissions can result in similar issues. The securities regulators are here to protect the interests of investors and any omission, poor business practice or conflict that is contrary to client interests will be their focus.

Some common deficiencies we encounter:

  • Failure to maintain Form ADV for changes in your business or personnel
  • Inconsistency in employment, activities and relevant dates on your social media vs. regulatory filings. Did you file a false U4 with the state? Or post a misleading advertisement? Pick your rule violation.
  • Do you maintain accurate financial records? This was the issue at hand with this matter. We know running a business is tough and many small businesses are forced into some level of commingling. That said, you are running a business. Your financial situation must be solid and meticulous. If you can't do it yourself, you need to hire someone.
  • Suitability and documentation. This is not a one-time event and YES, you need to document these efforts. Leverage your CRM system with a few custom fields and let the workflow engine (in most CRMs) help you with these tasks and reminders.
  • Timeliness. If there is a change to your business, practices, fees, personnel, etc., changes must be filed and/or communicated promptly. Usually 30 days is considered the latest date to make such updates/communications.
  • Complete topic-based risk assessments. AdvisorAssist provides all compliance clients with risk assessment questionnaires on the risk management topics and regulations. We encourage you to complete these.
  • Ask questions and show progress. The regulators are not out to get advisors. They are out to protect clients. Continuous improvement and a culture of compliance will be obvious to a regulator (as will the lack thereof).

If you have any questions or concerns regarding your risk management or audit readiness, please contact us at

Friday, December 14, 2012

Massachusetts Sues LPL over Non-Traded REITS

The Massachusetts Securities Division sued LPL FInancial on December 12, 2012 for improper practices over the sale on non-traded REITS.

Here is a link to the complaint.

AdvisorAssist Analysis:
The compliant mostly focuses on three key areas:

  1. When there is a conflicts of interest between the broker(rep) and the Client, disclosure and suitability are critical and must be properly performed and documented. The complaint notes that “non-traded REITS are especially risky through limited redemption programs, high fees and commissions, and internal conflicts of interest.” Further, it questions LPL's supervision stating that although LPL did have “stringent requirements” for the sale of these non-traded REITs, LPL “failed to review properly sales” to ensure they did not represent a material portion of a retail investors assets (10% of assets).
  2. Failure to properly train its supervisory staff with respect to these instruments, including prospectus and suitability requirements.

This complaint points out one key issue that is not just an LPL specific issue. Remote supervision is tough!It is a challenge whether you have a single offsite advisory person or thousands or affiliated personnel. Firms must establish the appropriate controls, workflows and validations. For instance, we believe every firm that has more than one person should have an account approval process. Further, an Investment Committee and notes on security analysis can be very helpful in demonstrating due diligence. Lastly, fiduciary duty and suitability are not one-time events. Firms should enhance their technology (CRM or reporting systems) to make this continuous review manageable.

If you have questions on how to implement these controls, please contact us at

Thursday, December 13, 2012

2013 Renewal Fees - DEADLINE 12/13/12

The 2013 Renewal Fees were due on 12/13/2012 for all firms (RIAs and BDs). If you have not funded your renewal account with the appropriate fees, you must do so promptly.

FINRA notices also make mention of a $100 late fee plus interest. RIAs are not subject to those fees (only FINRA members for FINRA fees). However, you still need to give prompt attention to this matter. The systems close for transactions on the 20th for the year. If you are not paid by the 20th, you risk being terminated by the states.

If you have any questions regarding your fees, please contact us at

Wednesday, December 12, 2012

FINRA Proposes Compensation Disclosure

In FINRA's continued quest for a role in the RIA segment, their 20-member board of governors voted on 12/10/12 to propose a rule that would require a registered representative that switches firms to disclose any compensation, bonus or other incentive received in the recruitment process.

This is important for the fiduciary movement, but is likely to result in continued departures from the brokerage firms. We expect significant pushback from member firms. RIAs must disclose the nature of ANY conflict of interest, including, but not limited to compensation from 3rd parties. However, they do not need to state specific dollar amounts. They are required to state the source and nature of any conflict and how they mitigate such conflict.

Financial Advisor magazine has good coverage on this topic (

We'll continue to keep you apprised on this proposal. Please share any thoughts or questions.