What role does compliance play with registered investment firms, and why is it important to you?

November, 2016 | Working With a Wealth Management Firm: Doing Your Due Diligence

By: Jim Pratt-Heaney

As Published in Worth Magazine

Registered Investment Advisors have a fiduciary duty to their clients. This means that they have a fundamental obligation to act and provide investment advice in their clients’ best interest. For SEC-registered firms, the Commission dictates that Registered Investment Advisors “owe clients a duty of undivided loyalty and utmost good faith.”1 In order to comply with this important requirement, we believe it is crucial for a firm to have in place a solid compliance program. But what does that mean for you, the client? As a client, you should be confident that your selected firm has a compliance program which not only protects your assets, but also your information and privacy. At the same time, the firm should reveal any conflicts of interest and monitor its marketing and performance claims to ensure their accuracy. At Coastal Bridge Advisors, we take this responsibility quite seriously and have listed below the components of a strong culture of compliance that we think a client ought to look for in a firm:

1. Clearly Defined Compliance Program. Firms registered with the SEC are required to adopt and implement written policies and procedures that aim to prevent violations of the Investment Advisors Act of 1940. In many compliance programs, an appointed chief compliance officer will oversee a review of these policies at least once a year.

In our view, such policies should cover:
a. The portfolio-management process
b. Accuracy of disclosures made to investors
c. Internal and personal trading activity
d. Safeguarding of client assets
e. Creation and maintenance of required
books and records
f. Privacy protection of client records and information
as part of a data security plan
g. Trading procedures that address best execution
and soft dollar arrangements
h. The process to value client holdings and
fee assessment
i. Business continuity plans

2. Disclosure Requirements (Form ADV). Firms registered with the SEC must prepare and file certain disclosures via Form ADV, which for many advisors includes a written disclosure brochure that the advisor is also required to deliver to its clients. The disclosure brochure contains important information for clients, such as services provided, fees charged and custodian and broker dealer status. It is a requirement that this brochure be written in “plain English” and be available to the public. Clients should diligently read and ask any questions they have about the ADV before hiring a firm.

3. Code of Ethics. Firms registered with the SEC must have a code of ethics which sets forth the standards of business conduct expected of their employees, officers and directors and require compliance with federal securities laws. This code requires all members of the firm to report their own trades and investments to the chief compliance
officer, to prevent any use of insider information and to ensure that clients’ interests always come first.

4. Books and Records. Firms registered with the SEC are required to maintain certain books and records for specific retention periods. These records include business financials and accounting statements. These records also include investment advice and transactions in clients’ accounts, including orders, confirmations and written requests for funds and deposits.

5. Marketing and Advertising. To protect investors, the SEC has restrictions on how firms registered with the SEC may advertise their services and performance in various mediums. Any false or misleading claims are prohibited by the SEC. Every chart, graph and performance number should be represented in a clear manner and be substantiated by reportable records. For example, when illustrating a set of returns, the advisor generally must note whether the results are inclusive or noninclusive of fees.

Selecting a wealth advisory firm is a significant decision. As such, we think prospective clients should delve beyond the performance and services provided by an advisor and carefully examine the compliance structure that the advisor has in place. In our view, a quality firm should be proud of its compliance and regulatory procedures and be glad to review them with you. For the safety of your assets and your privacy, we feel it is paramount that you not underestimate the importance of a strong culture of compliance.

*While this article generally discusses requirements for SECregistered firms, state-registered firms are often subject to many of the same or similar requirements. Registration with
the SEC as an investment advisor does not imply a certain level of skill or training. Disclosure: This article is provided by and has been paid for inclusion in Worth magazine by Coastal Bridge Advisors (“Coastal Bridge Advisors”), an SEC registered investment adviser with its principal place of business in the state of Connecticut. Any reference to or use of the terms “registered investment adviser” or “registered,” does not imply that Coastal Bridge Advisors or any person associated with Coastal Bridge Advisors has achieved a certain level of skill or training. This article contains general information that is not suitable for everyone. The information contained herein should not be construed as personalized investment advice. Past performance is no guarantee of future results. Certain information in this article has been derived from thirdparty sources. While we believe these third-party sources to be reliable, we cannot guarantee the accuracy of any such information. Additionally, this article contains certain forward-looking statements that point to future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the results portrayed in such forward-looking statements. As such, there is no guarantee that the views and opinions expressed in this article will come to pass. Investing in the stock market involves gains and losses and may not be suitable for all investors. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. For additional information about Coastal Bridge Advisors, including fees and services, send for our disclosure statement as set forth on Form ADV from Coastal Bridge Advisors using the contact information herein or visit www. adviserinfo.sec.gov. Please read the disclosure statement carefully before you invest or send money.

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