Episode 91: 2021 Year-End Checklist for Investment Advisers

On episode 91 of the CCO Buzz, we are lucky enough to be joined by Director of Consultation Services, Tina Mitchell, to discuss her annual Year-End Compliance Checklist for Investment Advisers.



CCO Buzz: Hello and welcome back to the CCO Buzz! Sadly, Summer is gone, and Fall is here. The leaves are changing, and it is getting a bit colder out there. As the seasons change, we are turning into a new quarter, and with Q4 upon us, advisers need to begin gearing up for year-end and 2022. Today, we are fortunately joined by the perfect person to discuss this with…

Listeners, help me say hello and welcome to Core Compliance’s Managing Director of Consultation Services, Ms. Tina Mitchell. She’s here to discuss her latest Risk Management Update article on Investment Adviser Year-End Compliance, as well as to provide some preparation tips.

It’s one of our most read and highly anticipated pieces of the year. With valuable industry insight and an enhanced scope of the latest requirements and enforcement trends, Ms. Mitchell’s latest RMU is a “can’t miss” piece and I cannot wait to dive in with her on the subject.

Tina, in your article you touch on an SEC Risk Alert from November 2020. Can you elaborate on how this specific alert led you to write the 2021 Yea-End Preparation Checklist?

Tina Mitchell: Of course. The November 2020 Risk Alert covers compliance program deficiencies that the SEC found during routine exams. And this, along with the fact that the SEC stated in their 2021 exam priorities that they will continue to focus on adviser compliance programs in their exams, for adequacy, was the perfect segue for my year-end checklist. The risk alert findings are very telling and have an overall theme of lack of resources devoted to compliance.  

CCO Buzz: What a great segue, Tina. Your article is a helpful roadmap of compliance tasks for any Investment Adviser in today’s industry. You provide a comprehensive structure for how to tackle Q4 compliance projects. In reflecting on your article, can you talk about some of the specific compliance areas that firms should be focusing on?

Tina Mitchell: Absolutely! We just need to look at some of this year’s enforcement cases against investment advisers, which centered around the adequacy of the firm’s compliance controls and their written policies and procedures pertaining to areas such as mutual fund share class selection, best execution, revenue sharing arrangements, conflicts of interest, cybersecurity, custody, charging advisory and performance fees, and last but not least, disclosures. This, not to mention the areas outlined in the SEC’s 2021 exam priorities, like senior and retirement investor protections.

CCO Buzz: Wow, that is quite the list to focus on – even I wouldn’t even know where to start. So, do you mind helping me and our listeners with a few pointers from your checklist?

Tina Mitchell: Of course, but I know we don’t have a lot of time, so I’ll discuss a few that I find to be helpful starting points for any firm.

Performing Risk Assessments are essential to help ensure the continued strength of a firm’s compliance program. When completing a risk assessment, I think CCOs should confirm that they not only have identified applicable risks, but such risks have been adequately addressed and disclosed. It’s also extremely important to have, of course, robust written policies and procedures that cover these applicable risk areas.

Advisory fees continue to be a heightened focus for the SEC, so CCOs should perform an audit of their firm’s fee calculation and billing processes to ensure that the advisory fees are calculated and billed to clients in accordance with their agreements and, of course, disclosures. Additionally, as part of the audit, CCOs should be sure to interview employees that perform billing to confirm their knowledge of firm’s billing policies and procedures and their required safeguards in place to help ensure accuracy.

With remote working emerging as the new normal, I think firms should be considering the strength of their cybersecurity and electronic data protection processes. Utilizing vulnerability scans and penetration testing on the firm’s networks and electronic systems being used for business purposes is actually very important to identify the risk and weaknesses in the firm’s systems. But it’s integral to leverage an IT firm that specializes in this area, because not all IT firms perform these on a routine basis.

And then lastly, a year-end preparation tip that is essential for continued success, of course, is employee training. Employees are a firm’s first line of defense. So, CCOs should ensure that the firm’s compliance training program covers a comprehensive approach to the firm policies and procedures. Some areas for training that are critical include, conflict areas, Code of Ethics, cybersecurity, business continuity, privacy safeguards, and of course working with senior clients.

CCO Buzz: Wow. Thank you so much Tina for providing listeners with this initial guidance on how to start tackling Q4 compliance projects. Before we go, is there anything else you’d like to add?

Tina Mitchell: Yes, while there are many compliance areas that firms need to evaluate and consider before the end of 2021 – I think now also is a good time to evaluate the resources that are being delegated to the firm’s compliance program. So compliance is costly, but there are ways to control some of the costs. I’ll give you an example. Compliance technology has actually become very economical for firms and a majority of the compliance tasks outlined in my Risk Management Update can be monitored, tested, and even strengthened through the use of compliance technology. Outsourcing also is a cost-effective option. You can outsource as little or as much as you want.

I do understand that the word “economical” is relative, but all senior managers need to do is consider the cost of technology vs. the amount of regulatory penalties and disgorgements that are being levied. I’ll give you an example, in 2020 alone, the SEC imposed penalties totaling over $1.1 billion and ordered disgorgement payments in the amount of $3 billion.

CCO Buzz: Wow. $1.1 billion, $3 billion…with a “B”? That’s insane. Listeners, Core Compliance can help. To find out about technology solutions and outsourcing services our team can offer, and how we can further assist with year-end compliance planning and beyond, please contact us at info@corecls.com or you can call us at (619) 278- 0020. Thanks!

Well that’s it for this week’s episode. If you’d like additional information, please check out our website at www.corecls.com. You can also follow us on Facebook, LinkedIn, or Twitter @CoreCls. Thank you, and we hope you tune-in to next week’s episode of the CCO Buzz.



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