Not long ago our office received a letter from the SEC informing us that the agency's examiners would be visiting in two weeks to perform our RIA audit. They conveniently provided us with a list of materials that we should get ready for their review. Our compliance officer, Mena Bielow McAfee, had been through this before, but not for 11 years, so there was naturally quite a bit of angst around getting prepared for this audit.

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."



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.



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.

9. Call your compliance attorney (if you have one) and tell him or her of the impending audit. Make sure the attorney will be available during the audit to answer questions for you or to speak with the auditor if necessary. Have him or her on speed dial. A great attorney will be checking in with you proactively throughout the day during the audit to give you encouragement and to put some of the questions that the auditors may have in perspective. Our attorney, Tom Giachetti, was particularly supportive and called Mena three times a day.

8. Even though you are given a list of materials for review, be prepared to provide information that may not even be on your radar. For example, we were truly surprised when asked to provide every change that we had made to our website for the past 12 months. Fortunately, our web provider, Lightport, was able to step in and provide that information quickly. You might want to check with your website provider to see if it can help with this if you need it.

7. When you are asked for additional information, be sure you understand exactly what the auditors are requesting, specifically the time period involved. They do not want to see any more than they have asked for, nor should you provide it.

6. Set the workday with the auditors in advance. If your daily hours are 9:00 a.m. to 5:00 p.m., tell them this and do not vary your work schedule.

5.The auditors will not tell you how long they intend to stay, so be sure to assign them an office or conference room that you can make available to them each day for weeks.

4. Treat the auditors with respect and expect them to respect you as well. This does not have to be an adversarial relationship, and they do not adhere to the philosophy that you are guilty until proven innocent. However, if you feel that someone is being intimidating or unfair, speak to the supervising auditor immediately, clearly pointing out that this attitude or behavior is unwarranted and not unappreciated.

3.Make sure your staff minds their own business. There is no need for them to hang around after hours or show up early. While there is a natural curiosity about the process, instruct them not to speak to the auditors unless your COO specifically invites them to do so. Similarly, they should not loiter in the hallways or engage in unnecessary chatter, but continue with their work as usual.

2. Take any suggestions from the auditors to heart; even though there may not be a specific rule they can reference, they may have some "best practices" advice that will help you build a better business.

And the No. 1 tip from Mena is:

1.Keep your opinions to yourself. Auditors don't make policy, so beating them up over what you think is stupid or unnecessary is counterproductive.

While it's a real stretch to imagine that an SEC audit may feel similar to the Germans invading Britain, remember if you've got good tools and great resources, you know your responsibilities and you've been keeping the required documentation, you too can "Keep Calm and Carry On!"


Deena Katz, CFP, is an associate professor in the personal financial planning division at Texas Tech University. She is also chairperson of Evensky & Katz, an advisory firm in Coral Gables, Fla.

Register or login for access to this item and much more

All Financial Planning content is archived after seven days.

Community members receive:
  • All recent and archived articles
  • Conference offers and updates
  • A full menu of enewsletter options
  • Web seminars, white papers, ebooks

Don't have an account? Register for Free Unlimited Access