Making Compliance Surprises a Thing of the Past

The thought of an SEC audit would cause most advisors’ hearts to skip a beat. But this doesn’t have to be the case. A unified advice platform and help from an expert team of technology specialists can help reduce the stress of an audit. 

SEC: Show Us Your Books—We’ll Look for Mistakes

In a traditional audit, the SEC used to send a team of auditors to examine samples of paper records, looking for mistakes. It was an inefficient, time-consuming process for both the SEC team and the firm under investigation, with auditors combing through records and advisors hoping they didn’t find anything. Times have changed.

SEC: Show Us Your Data—We’ll Find Your Mistakes

Realizing it could take advantage of digital technology, the SEC revised its style of auditing. Now, rather than trying to find a mistake through detective work, the SEC will ask the target RIA to provide all of its data for the areas they’re interested in reviewing, like allocation alignment, cash level, trade count, holdings restriction, or securities concentration.

Using their data skills, auditors can usually go through the information faster than advisors can put it together. The SEC teams are skilled at managing and analyzing the data to determine how well the target firm is complying with regulations.

This data-based approach has changed the nature of audits. The SEC wants to see all the information that’s relevant to a particular inquiry, which can be a challenge if an RIA is using multiple systems. The auditors aren’t looking for specific mistakes; they’re reviewing all of the data knowing that they’ll find mistakes. While this might sound unsettling, it doesn’t have to be. 

If a firm has the ability to gather the data, it has the power to address compliance problems before an audit. In fact, RIAs can do better: Advisors can address compliance issues almost as they occur, which means that they are resolved in real time. In this data-centric approach, the idea of preparing for an audit is obsolete because the RIA can master its data in the same way the SEC has mastered it. Most compliance surprises become a thing of the past.

RIA: Let’s Examine Our Data and Fix Any Mistakes

By using a wealth management platform with in-built reporting and rules-based monitoring, RIAs can identify, report, and manage compliance. There are many benefits of using and configuring in-built compliance systems, including:

  • Providing management with visibility intothe extent to which the firm is in or out of compliance. There are no more unexpected compliance surprises. 
  • Tasking advisors with resolving exceptions rather than involving a compliance department, which can accelerate the compliance process.  
  • Eliminating back logs of compliance issues by addressing them on a daily, weekly, or monthly basis. 
  • Reducing future violations because advisors understand that they are being monitored systematically and in real time.

By applying and configuring Envestnet policies, RIAs can monitor accounts for compliance in several key areas, including core suitability, account analysis, and restricted holdings, among others:

  • Core suitability defines suitable risk for an account’s investments. The system monitors that the account remains within a specific risk bracket as specified by the client in their Investment Policy Statement. The RIA can configure the systems to send alerts if the account is outside of its parameters.
  • Account analysis monitors the account for things like available cash and trade count limit to track how actively the advisor is managing the account.
  • Restricted holdings control the types of securities or the concentration of securities that clients or advisors can invest in. 

Configuring Envestnet Compliance Capabilities to Your Practice

The Envestnet unified advice platform includes many powerful capabilities. To harness this power, many advisors need a team of tech-savvy professionals with management experience running retail RIAs and preparing for SEC audits. 

Contact Us for Help

LibertyFi works with you and your outsourced compliance team to configure the Envestnet platform to organize and deliver compliance-related data properly and on time. If needed, the LibertyFi team can interpret and defend the data to the SEC. 

While other consultants have run technology for firms, LibertyFi has run a firm using the technology.


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