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Audits for the New RIA

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Jan 25, 2010 4:42 pm

I am coming up on my two year anniversary from breaking away and forming my RIA. For the guys here that fall under state jurisdiction - how long did it take after forming your RIA for your first audit to happen? (I understand results will vary state from state)

When I was forming mine, I asked my state guys and they said they like to come out within the first three years. In speaking with some of my colleagues the real number seems to be 5.

Also, what are the audits like for a small solo firm? Is it just one day, what do they cover?

One of my goals for 2010 is to get more organized on the compliance side.

Thanks for any input!

Jan 25, 2010 4:57 pm

It will be the worst experience of your life.

Jan 25, 2010 5:00 pm

Wait… you mean it may be harder than the b/d audits I have had in the past?

Them: "So hows biz going"
Me: "good"
Them: "You following the procedures laid out in the manual we gave you?"
Me: Yep
Them: Are you related to Maddoff"
Me: Nope
Them: "You wanna grab some lunch"
Me: Nope

End of Audit

Jan 26, 2010 1:39 am

I had my first state audit about 6 months in.  I basically had files for each area much like my old branch supervision system i.e outgoing cor. incoming cor, faxes, advertising, books and records, new acct docs, etc. .  Charles Schwab has a white paper on the 30 or so files to keep that I followed.  Auditors (2) came in, saw my files, were duly impressed, spend 2 hours looking them over and about 15 minutes of questions.  They were out by noon.  I asked when I might expect them again, every year or so?  They replied “about every five years unless there is a problem”.  Life IS GREAT as a RIA!  

Jan 26, 2010 3:09 am

Do they let you know they are coming? Or they can pop in unannounced?

Jan 26, 2010 12:02 pm

I've always recommended the new RIA firms that I support to contact their State Securities Department once they are approved and inquire if the State can send them a sample auditors checklist so from day one, the RIA firm is prepared for the audit down the road.  Many States based on the experiences of the RIA Firms that I support are happy to do this -- it is a very proactive action on part of the RIA. 

In terms of checklists I've found one of the best guidebooks available on the subject which identifies the typical recordkeeping requirements required by many States and the SEC -- although nuances do exist.   If anyone on this forum would like to receive the recordkeeping guidebook, please simply email me and I'll be happy to provide.  [email protected]   Best wishes to your RIA Success!!!   Fred
Jan 26, 2010 9:22 pm

On a related note, the Chicago Office of the SEC recently sent out a letter to a RIA firm with a different approach from normal.  This time, it was a document request letter - nothing special.  But you were to turn over the requested information / answer the questions, and they’ll review it to determine if you NEED an audit.  They don’t let you know if your not going to be audited for about 12 months.