Compliance Examination Prep & Support

Every firm that is regulated by the Securities and Exchange Commission (SEC) encounters the “Risk-Based Examination Program.” Investment advisory firms are generally subject to examination every two to three years. An examination is usually not a signal that a firm has done something wrong; regular examinations are simply to verify that firms are operating as their registration and subsequent filings say they are.

Even though examinations are something every investment advisory firm periodically endures, they are consequential and can be daunting. Compliance Advisor Professionals, LLC (CAP) takes a proactive approach to exam preparation so that when the process is initiated, our clients know they are ready.

CAP’s President and Managing Director, Ellen Bruno, has over 30 years of experience in various industry roles, including having served as Chief Compliance Officer for a registered investment advisor and broker-dealer. She has assembled a team of professionals with diverse backgrounds in securities, finance, investments, accounting, and marketing to provide comprehensive examination preparation and support to our clients.

The SEC Examination Process

A firm may be selected for examination because it is recently registered and has never been examined; because it has a “high-risk” profile; or often, because it hasn’t had an examination for a few years. Here is how examinations typically unfold:

Initial Call

The process typically begins with an initial call to the firm’s Chief Compliance Officer, providing 1-2 weeks’ notice of the impending examination. In some cases, such as those where the examination was triggered by a complaint, there may be no prior notice of the examination.

Request Letter and Response to Information Request

The initial call is immediately followed by the detailed Request Letter, a massive document request covering multiple years of records including trading records, marketing materials, client lists, and compliance manuals. The firm must upload the requested documents to a secure SEC portal, typically within 5-10 days of receiving the Request Letter.

Initial Interview and On-Site Inspection

Examiners review the documents provided and then conduct interviews with key firm personnel, including the CEO, CCO, and CFO, to confirm that their verbal responses align with the firm’s written materials. These interviews may take place either in person or virtually. Most examination work is conducted virtually, with only the interview phase being conducted in person.

Exit Interview

At the conclusion of the inspection, the SEC holds a meeting to discuss its preliminary findings. If there are any misunderstandings, this is the firm’s first opportunity to clarify them.

Final Results

Within 120 days of the end of the inspection, the firm will receive a “No Findings” letter, which closes the examination with no deficiencies, or a Deficiency letter detailing the areas in which the firm was found to be non-compliant. If the SEC cannot complete its report within this 120-day window for some reason, they must contact the firm with a status update and a revised schedule.

How CAP Provides Examination Prep and Support

Successful examination preparation begins long before the initial call that an SEC examination is about to take place. CAP’s proactive approach ensures that our clients have everything in place to provide examiners so that they can be clear, open, and confident at every step.

Pre-Examination

CAP is diligent and thorough in preparing compliance documents to ensure they are deficiency-free when reviewed. Our team remains alert to the emergence of new regulatory rules, updating client materials accordingly so that they are always current. Clients won’t have to scramble to “fix” materials to be ready for examination.

CAP’s compliance support services include regular meetings with clients in which we go through an extensive compliance checklist; that process alerts us to the need for filings or document updates so those can be performed in a timely manner. We also identify themes in recent SEC examinations so we can advise our clients of areas in which the agency is especially likely to focus its scrutiny.

During the Examination

Our clients know that CAP is their first call when they learn of an examination; we reassure them that they are ready. Although we regularly provide firms with their compliance documents and records of filings, we also make those materials available on a zip drive so that they are all in one place and organized. This enables our clients to promptly and thoroughly respond to the Request Letter and any supplemental requests for information, setting the tone for the rest of the examination.

CAP also works with key personnel at the firm to prepare them for their interviews. We offer ongoing support throughout the inspection to help them respond professionally, accurately, and confidently to examiners.

Post-Examination

CAP has a strong, decades-long track record of helping registered investment advisory firms achieve “clean” exams with no deficiencies. In the event potential issues are identified, we help manage them starting in the exit interview and throughout the post-examination period. This includes helping clients prepare a response letter addressing concerns the examiner has raised and swiftly remedying deficiencies.