Of course, in her own way, Mena has been preparing for this for years; she has taken compliance courses and sought out the best software tools and legal support. She knows what our responsibilities as an RIA entail and she keeps detailed, easily accessible records to demonstrate them.
Still, there was an underlying buzz of excitement and a tingle of nervousness and uncertainty as the auditors' visit got closer. Mena did her best to keep everyone focused on their responsibilities and not dwell too much on the weeks ahead. This atmosphere reminded me of the signs that the British government printed in 1939 to keep up the morale of the British people as they faced the impending invasion: "Keep Calm and Carry On."
THEY WOULDN'T LEAVE
Three of them showed up and stayed 0for three weeks. Here is what we learned during that uncomfortable period of time.
My partner Harold Evensky suggests that someone besides the owner be the compliance officer. It's a big job and during the audit that person needs to be available at any time to prepare materials, answer questions and coordinate activities between the office and the auditors. He also thinks that a general use of tranquilizers might be in order.
Mena tells me that the biggest challenge is not when the auditors walk through the door, but preparing you and your staff at all times by consistently following processes and procedures. Our firm has staff meetings every week where they discuss policies and systems, and Mena conducts a compliance meeting once a month to focus on aspects of our operations and ensure that everyone understands their responsibilities.
"From my first interview with the auditors, it was clear that we had detailed policies and procedures to follow," Mena says. "Each subsequent interview with staff or partners echoed my descriptions and confirmed my comments. It was clear we all knew what we were doing. When the firm's operations are so transparent, it is easy for everyone to understand. More important, it is clear that everyone follows the system. The SEC loves to hear this."
Equally important to having a successful audit is having the right information and tools at hand to get what you need, when you need it. For example, it's essential that you archive your emails, but be sure that the system you use allows you to call up any time frame and print them.
You can do this through paperless storage systems made by companies like Laserfiche, Trumpet or NetDocuments. You can also store documents through your client relationship management program, using software like Junxure, Protracker or Redtail. There are even archiving solutions like Barracuda Message Archiver that will solve your toughest email archiving and retrieval issues.
Our auditors did not ask to see copies of our emails separately from our client notes because everything is stored in Junxure. When they requested information on specific clients, every note, email and document was already there. Mena suggests that you keep everything you can in a client file so that you don't need to run around digging up materials from several places when you are under a time crunch.
Our auditors requested all information in either PDF or Excel format. Your portfolio management software should allow you to export into other mainstream software so that you can simply create the items you need and copy them onto a jump drive to provide to the auditors. It is practically impossible for a decent size firm to provide all the information on trading and back-office operations without good portfolio management software. There are many programs out there that fit the bill, including Portfolio Center and Tamarac.
MENA'S TOP 10 TIPS FOR SURVIVING AN AUDIT
I am happy to report that we survived the audit. Here's what Mena would tell other advisory firms that are preparing for when the auditors come knocking:
10. Your chief compliance officer (CCO) should be the main contact with the auditors. Unless they specifically ask to speak with someone else, everything should be directed through your CCO. If any of your staff is required to speak to the auditors, your CCO should be there with them.
