Maintaining proper books and records is a key component of your compliance program, but with so many rules and regulations to keep track of it can quickly become complicated. The current environment and the increase in working from home has added further complications to books and records maintenance for many advisors.
In order to provide you with the information you need in this stressful time, we spoke with the CEO of Key Bridge Compliance, Matt Swendiman, about how and why books and records maintenance is so important.
Matt, can you start by telling us a bit about yourself?
Of course. I’m the CEO of Key Bridge Compliance, an outsourced compliance consultancy offering services to RIAs across the United States. I’m also the co-founder and Chairman of F/M Acceleration, a back and middle office solution provider for RIAs.
I’ve been working in the investment management space since 1996. In that time, I’ve served as an investment management associate in the Washington, DC office of K&L Gates, as the Chief Administrative Officer for Fifth Third’s institutional investment management business, and as Secretary and Chief Legal Officer to the Fifth Third Funds, a mutual fund trust with twenty-four series.
Books and records maintenance may not be an issue many firms have front of mind when it comes to compliance. Why is it important?
It’s key for the success of your compliance program, and your business. If you do all the right things, but don’t have the documentation to back it up, you’re taking on additional risk. In our experience, most firms do the work, it’s just about taking that one additional step to document it.
Does the current climate, with more people working from home, pose any additional books and records challenges?
Absolutely. Books and records maintenance is always important, but in the current climate, firms may need to pay it some extra attention. Everyone is adjusting to a new normal and even the most compliant advisors may face issues. While we can certainly understand how shifting priorities makes it easy for certain compliance matters to slip through the cracks, it’s more important than ever to make books and records a focus.
What causes you to say it’s more important than ever?
From a business perspective, keeping accurate books and records can help your business run more smoothly. Right now, keeping business operations running smoothly may not be easy, but it can help firms provide a better experience to both clients and employees, which only helps the bottom line.
We’re also expecting to see it come up more in future SEC exams. I serve on the ICI board and at our most recent meeting, we had a representative from the SEC who expressly stated that books & records are going to be an important focus point of the SEC during COVID-19.
Given the bear market and dramatic market volatility, is there any specific books and records requirements advisors should be paying special attention to?
During bear markets and times of high market volatility, suitability documentation is especially important as both a tool for the investment adviser and a reminder to clients that they were involved in the risk measurement and asset allocation process.
Although not all firms maintain formal investment policy statements (“IPS”) or risk tolerance questionnaires (“RTQs”), all investment advisers are subject to suitability obligations, which is a component of the firm’s fiduciary duty owed to clients.
Although not necessarily a legal document, during market volatility, IPS and RTQs serve as a link between the client, the investment adviser, and the investment portfolio. A well-crafted IPS or RTQ provides a documented structured decision-making process for clients and advisers and hopefully offers clarity between the party as to responsibilities.
What are some actionable steps advisers can take to ensure they’re appropriately documenting suitability?
There are a few steps advisers can take. Investment advisers should routinely compare client accounts to their IPS/RTQ. Advisers should seek to adhere with the IPS/RTQ to the extent possible, as these documents may prove invaluable during client complaints, litigation, and regulatory inquiries. If during market volatility, clients are routinely asking you to make exceptions to the IPS, document these conversations and have the client sign off on a new policy statement.
How does Key Bridge Compliance help advisers ensure they’re meeting all of their books and records requirements?
Each firm is unique and will therefore have different areas where they struggle. We understand this and it’s why we really take the time to get to know our clients. Part of the onboarding process for all new clients is a comprehensive analysis of the firm’s existing compliance program. One part of this analysis is a Record Retention Matrix that helps us learn exactly how and where firms document everything required.
We’ve all had to adjust to a new normal, and that means your compliance program may also need to adjust. For questions about how outsourced compliance services may be able to help you handle compliance in this new and rapidly changing environment please contact us at inquiries@keybridgecompliance.com.