Successfully Navigating An SEC Audit

How LibertyFi Streamlined Regal Wealth Management’s Audit

There was a time when it was highly unlikely that a small RIA would be audited by the Securities and Exchange Commission (SEC). But advances in technology and the adoption of a data-centric approach have made it fast and easy for the SEC to comprehensively audit even the smallest firms, regardless of their locations. 

Auditing Your Processes and Client Accounts

A typical audit starts with a phone interview followed by a call report that includes a list of specific questions and requests for detailed information about individual client accounts. Firms usually have several days to respond with comprehensive answers and data. 

The SEC’s data-driven approach uses algorithms to examine even the smallest details of client accounts. They have the ability to analyze information almost as quickly as firms can provide it. The auditors don’t start their investigation looking for specific problems. They want a complete picture of the data that they can examine for inconsistencies and inaccuracies. 

After their initial analysis of the firm’s responses and data, auditors often come back to ask additional questions that probe more deeply into their areas of investigation and potential problems. As the SEC continues its investigation, it can follow up with multiple requests, each of which may cover between five and 15 pages. It’s not uncommon for SEC audits to last for several months.

Can You Provide the Information the SEC Wants?

Many large firms have accounting and operations departments that can provide the information the auditors want to examine. But if you’re running your own firm, it’s up to you to give them what they want.

Given the potential scope and depth of an SEC audit, how can a small firm of advisors meet auditors’ expectations without a dedicated chief compliance officer? How can they respond effectively to the SEC’s information requests? 

If the firm uses a third-party compliance consultant, is that service familiar enough with the clients, fee structure, billing practices, and accounts to confidently identify and provide the data the auditors want to see? The SEC’s analytics are powerful enough that it can identify and query something as specific as a misplaced decimal point or a transposed number in a single cell in one document of the thousands they request.

How can a small RIA effectively manage an SEC audit?

How a Small, Nimble RIA Successfully Managed Its SEC Audit

Regal Wealth Management, founded in 2019, has three employees serving 50 clients across 125 accounts and $105 million in AUM. As a LibertyFi client, Regal utilizes the Envestnet platform for portfolio accounting. 

In the middle of 2020, the SEC contacted Jason Bell, Managing Director at Regal, requesting an initial phone interview followed by multiple rounds of exhaustive follow-up questions over a four-month period.

Based on work that Regal had done with its custodian and third-party compliance consultant, Bell felt well positioned for the initial stages of the process. But once the SEC started digging into individual client accounts, the team at Regal relied heavily on LibertyFi for answers to specific operational and client questions. 

With the ability to analyze all of their data, the auditors requested thousands of pages of documents and statements. To satisfy the SEC’s requests, the team at Regal needed to supply the right data and ensure its accuracy or risk raising flags with the auditors. Because the team at LibertyFi has expertise with the Envestnet platform and its data management system, they were able to respond to requests from Regal often within minutes and at most by the end of the same day. 

By saving Regal from countless hours of finding and validating data, LibertyFi helped the Regal team focus on serving clients and addressing other important areas of the audit. Almost immediately, Bell felt confident that he was providing the SEC with the information it needed. 

“We had to continue running our business and serving our clients while meeting the SEC’s requests. Without LibertyFi’s help, the audit would have consumed every hour we could throw at it and more.” 

– Jason Bell, Managing Director, Regal Wealth Management

Experience and Expertise To Help You Navigate Your SEC Audit

LibertyFi has the experience and expertise to quickly find the answers to many SEC questions regarding operations and client accounts. With LibertyFi support, you can successfully manage an SEC audit. 

For more information, contact Alli Jordan.


More Posts

Get To Know Aptus Capital Advisors

Perhaps you’ve heard our recent news: LibertyFi and Aptus Capital Advisors have merged to create a firm designed to build custom solutions for RIAs. We