How to Prevent Compliance Issues in an SEC Audit

Securities/compliance attorney Tom Giachetti, chair of the Investment Management & Securities Practice Group at the Stark & Stark law firm, received the annual Leadership Award at the Insider’s Forum conference in mid-October. This award is given each year to someone who has provided extraordinary leadership to the financial planning profession. (Past winners include Harold Evensky, Tim Kochis, Mark Tibergien, Susan John, Joel Bruckenstein and Deena Katz.)

In the presentation of the award, Giachetti was cited for bravery and advocacy for the profession: specifically, his willingness to regularly call out the SEC and other regulators, on behalf of the profession, for mistaking their oversight role as an invitation to manage advisory practices, rather than focusing on making sure client assets are where they belong and advisors are playing fair with their clients. He has noted that the SEC regulatory process is hardest on the people who are least likely to harm clients, and easiest on those whose business model is exploitive. In his work for advisory firms during audits, he’s corrected SEC examiners about their misunderstanding of advisor firms’ actual legal obligations.

A keynote presentation at the conference featured Giachetti counseling a somewhat confused and befuddled advisor (a role played by me, Bob Veres) who is seeking advice on common but complicated issues that have come up recently around the profession. The following is an edited version of the conversation, which the audience found alternately hilarious and disturbing.

It may be the best compliance-related presentation the audience will see in this or any year.

Advisor: Tom, I’m coming to you as an esteemed financial planner who offers great service to my clients, but I have an SEC audit coming up and there are some issues that I’d like to clarify before they arrive in my offices. Do you think you could help me prepare for an SEC inspection?

Giachetti: Sure. What’s on your mind?

Advisor: Well, as I mentioned earlier, I offer great service to my clients, and as you can imagine, I want the world to know about it. Are you aware that the SEC recently changed its rules regarding testimonials? Did you catch that?