Scottrade has an excellent new “News and Information” web site that is accessible to all investment advisers. It can be found at: http://advisoradvocate.scottrade.com/.

Wishing you all a happy, healthy and compliant New Year.

As we approach the end of the decade I thought it appropriate to list the top compliance events of the decade. Purely subjective, these events have, in my opinion, greatly influenced compliance in the investment advisory profession. I did leave out the obvious number one compliance event - the formation of U.S. Compliance Consultants in 2005 - because I did not want the list to seem self-serving. However, as we all know, everything else pales in comparison. So, without further ado, the top compliance events of the past ten years are:

1.  September 2008. Collapse of Lehman Brothers; Seizing-up of the credit markets; Stock market collapse. Auction rate securities frozen. Housing collapse. Mortgage market collapse. Banks collapsing. Recession. Depression (at least among those working in the financial industry). Sweeping regulatory reform. Enough said.

2.  The Compliance Rule.  The passage of the compliance rule in 2003 changed the way every SEC and state registered investment adviser approached compliance.

3.  Madoff.  A watershed event as people will talk about the investment advisory profession as before-Madoff and after-Madoff.  

4.  The Gramm-Leach-Bliley Act. True, this was enacted in late 1999, but the Financial Privacy Rules and the Safeguard Rules all came during this decade and had a huge impact on how investment advisers conduct their advisory business.

5.  Late Trading Scandal.  Although almost quaint by today’s standards, the mutual fund late-trading scandal in 2003 was the impetus behind the enactment of the Code of Ethics Rule as well as the SEC’s interest in having investment advisers retain and archive their electronic communications.

6.  Hedge Fund Registration/Hedge Fund De-Registration. Bringing the “bad boys” of the financial industry under the watchful eye of the SEC and then the bad boy of the hedge fund industry (at least from the SEC’s point of view) challenging the SEC and winning. One wonders if this body blow to the authority of the SEC had any impact on its willingness to stand up to Madoff.

7.  ENRON. How quickly we forget, but the ENRON scandal resulted in the largest bankruptcy in American history up to that time.  It also wiped out Arthur Andersen.

Here are 14 actions that all registered investment advisers should take during the first few months of the new year:

1.  Set-up Compliance Calendar for this quarter

Tip: All SEC-registered advisers are required to formulate a calendar of compliance tasks. These tasks should be broken down into daily, weekly, monthly, quarterly and/or annual segments.

2.  Calculate Assets Under Management as of December 31^st

3.  Obtain Final Renewal Statement (available 1.4.10; payment deadline 2.5.10)

4.  File your Annual Updating Amendment via the IARD system (deadline is 3.30.10)

5.  Review Advertising and Marketing Material for Required Disclosures

6.  Update Investment Policy Statements

Tip: Make sure that if you only provide an IPS to some clients that you have a documented reason for not providing it to other clients.

7.  Contact Clients to Determine if Investment Objectives or Risk Tolerances have Changed.

8.  Make Annual Offer of Form ADV, Part II

Tip: You can eliminate these last two tasks going forward by having the following disclaimer placed on your client correspondences or adding it as part of your email signature. You just have to make sure that it is a correspondence that all clients would typically receive at least once during the year.

“Please contact [insert name of company] if there are any changes in your personal or financial situation or investment objectives, or if you wish to impose, add or modify any reasonable restrictions to the management of your account. Our current disclosure statement is set forth on Form ADV, Part II and is available for review upon request.”

9.  Make Annual Delivery of Privacy Notice

10.  Hold Annual Employee Compliance Meeting

11.  Conduct Annual Compliance Training Session

Tip: Smaller firms can combine the Annual Compliance Meeting with the Annual Training Meeting.

12.  Obtain Annual Employee Acknowledgment of Receipt/Review of Compliance Manual.

13.  Obtain Annual Employee Acknowledgment of Receipt/Review of Code of Ethics

Tip: Remember that each year you are required to have your Supervised Persons acknowledge receipt of your compliance manual and code of ethics.

14.  Obtain Annual Employee Acknowledgment of Receipt/Review of Disaster Recovery Plan

Interestingly, the most recent SEC investment adviser audits I have been directly involved with have not been conducted by attorneys, but by forensic accountants. The focus was clearly on valuation issues - primarily on the valuation techniques used by the investment adviser to price illiquid fixed-income products. When the credit markets seized-up in September 2008 with the collapse of Lehman, many custodians began to value certain fixed-income products at par. The SEC contends that advisers should have realized that the par value provided by the custodian was a matter of convenience and that it should not have been the valuation used for billing purposes. As a result, if the par value was used for billing, refunds(!) to clients may be in order. Finally, the SEC examiners made it clear that they do not consider a custodian to be the equal of an independent third party pricing service.

U.S. Compliance Consultants will offer two free quarterly newsletters beginning in January 2010. One newsletter will focus on compliance training issues and the other on state compliance and registration issues. You can sign up for either or both of these newsletters on the U.S. Compliance Consultants home page.

Just a reminder that all state and SEC registered investment advisers must pay their annual renewal fees by this Friday. As time is running short, I would suggest to those laggards who have not yet made payment, that they do so via WEB-CRD pay or by wiring the money directly to FINRA.

Payment by Wire Transfers:

IA firms may wire funds into their IARD Renewals Account.

• Wire payments sent by 2 p.m., Eastern Time (ET), should post the next business day. Please note: Wire payments sent after 2 p.m., ET, may take up to two business days to post to your Renewal Account.
• Instruct your IA firm’s bank to contact: “Mellon Financial, Philadelphia, PA.”
• Provide your bank with the following information to initiate a wire transfer:
  

  	ABA Number:	031 000 037
  	Beneficiary:	FINRA
  	FINRA Account Number:	8-234-353
  	Reference Number:	Your Firm’s CRD Number and the word “Renewal”

• Remember to inform your bank that funds are to be credited to the FINRA Bank Account and to use your firm’s CRD Number and the word “Renewals” as a reference only.
• Please record the Confirmation Number of the wire transfer given to you by your bank. You will need this if you choose to call your bank later to confirm the wire transfer.
• If you send your wire transfer by 2 p.m., ET, your IA firm may confirm receipt of the wire payment by FINRA the next business day by checking your Renewal Account online or calling the FINRA Gateway Call Center at (240) 386-4848. Please have the Confirmation Number of the wire transfer provided to you by your bank. Please note: Wire transfers sent after 2 p.m., ET, may take up to two business days to post to your account.