#237 - Scott Gottlieb of U.S. Compliance Consultants: Outside Compliance for RIAs

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On today's episode of the Wicked Pissah Podcast,

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we will delve into the job of an

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outside compliance consultant, the difference between SEC and

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state compliance, and what the regulators are focusing

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on in 2025, including thoughts on artificial intelligence

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and texting with clients.

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It's time for a Wicked Pissah Podcast.

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Wicked Pissah Podcast.

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Wicked Pissah Podcast.

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It's time for a Wicked Pissah Podcast.

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Welcome to the Wicked Pissah Podcast, a production

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of the Financial Planning Association of New England,

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intended for financial planning advisors.

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I'm Brad Wright, past president of the Financial

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Planning Association of New England and co-founder

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of Launch Financial Planning.

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My co-host today is Kevin Williams, another

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past president of our New England chapter and

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founder of Full Life Financial Planning.

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Our guest on this episode is Scott Gottlieb.

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Scott is president of U.S. Compliance Consultants,

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a full-service compliance consulting company that focuses

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exclusively on state and SEC registered investment advisors.

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Scott founded U.S. Compliance Consultants in 2004.

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U.S. Compliance Consultants has been a preferred

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service provider for both Schwab and Raymond James,

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and Scott has conducted multiple compliance seminars on

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a variety of topics for both firms.

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Prior to founding U.S. Compliance Consultants, Scott

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was a corporate and securities attorney at Kelly

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Dry and Warren, an international law firm based

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in New York City.

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And he started out as a corporate attorney

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for Robinson and Cole, a regional law firm

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with offices in Boston, Hartford, and Stamford, Connecticut.

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For more info on Scott and his company,

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you can go to USComplianceConsultants.com.

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Scott, thank you for making time for us

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today.

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A pleasure to be here.

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And I guess full disclosure, Scott's company is

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the outside consultants for my firm, for Launch

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Financial Planning.

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I figured we're about almost 250 episodes into

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this podcast, and I don't think, to the

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best of my knowledge, that we've done anything

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focused on compliance.

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And I knew that Scott has stories and

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info and knowledge and would be a great

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guest for us today.

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So thanks.

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And let's start at the beginning.

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Tell us about your journey.

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How did you get to where you are

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today?

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And what made you want to work with

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people like us who apparently can't even fill

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out ADV questionnaires correctly?

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I graduated law school and went right to

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a regional law firm.

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And from there, tried to climb the ladder

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and went to an international law firm.

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It was absolutely miserable.

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I mean, it is a hideous place to

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work, a big law firm.

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You're there all hours.

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You're not appreciated.

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And my best friend and doubles partner in

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tennis is an investment advisor in Glastonbury, Connecticut.

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At that time, he was state registered.

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And he said, look, there is no one

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out there serving the small or medium-sized

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investment advisory firm.

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And it took me literally 24 hours to

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set up a new company, give notice, and

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start my new compliance consulting firm.

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I mean, I couldn't have gotten out of

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there quick enough.

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And I was really fortunate.

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I had the background.

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I was a corporate and securities attorney.

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And my offices were in Greenwich.

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And it was right when the SEC passed

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the first hedge fund registration rule.

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And I could literally walk down Greenwich Avenue

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and get clients.

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It was incredible.

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I thought I was clearly the best business

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person on the face of this earth.

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And then the SEC rescinded the rule.

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All my clients were no longer clients.

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And I had to actually come up with

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a business plan and figure out what to

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do.

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But that's how I built the business, working

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with state registered advisors and smaller SEC registered

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advisors.

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What's the job of US compliance consultants?

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What do you do with these small and

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medium firms?

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It really is whatever they need, dependent on

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their needs.

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I mean, for SEC registered advisors, I've served

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as their outsource chief compliance officer.

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I wouldn't do that again.

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I ended up in court over that.

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Because as a chief compliance officer, you're responsible

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for what goes on at the firm.

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And as a part-time CCO, you're really

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a no-time CCO.

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So I learned a lesson a very hard

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and expensive way.

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But a lot of SEC registered advisors will

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outsource their compliance to us, up to me

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or someone taking the CCO position.

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So we'll work with them to do their

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compliance testing.

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We do their compliance training, all their registration

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issues, whether it's the annual amendment or interim

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filings, and keeping up their compliance program.

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Drafting their initial compliance manual, doing the risk

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assessments, putting the compliance testing plan into place,

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and staying on top of that to make

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sure they're doing it, but also making changes

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as either the rules or the best practices

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change.

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So it's really an involved and it's a

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close relationship.

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And for state registered advisors, beyond setting them

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up and helping them register or putting a

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compliance program into place, they don't really need

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as much help.

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Typically, they need help with their annual filings

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and interim filings.

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And what they like is someone on retainer

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to be able to ask questions to.

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It's very hard for advisors who don't have

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a dedicated compliance program to keep up with

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compliance.

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And that's because investment advisor compliance, if you

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looked at the rules, maybe 20, 25%

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is written down somewhere and the rest, whether

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it's 75, 80% is based on best

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practices.

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And those are ever changing.

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It's whatever the regulators want those best practices

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to be at any one time.

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So it helps to have a compliance consultant

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that's going, sort of constantly going through audits

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with other firms, so they can stay up

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on what the regulators are looking for at

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any one time.

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How many of these firms do you think

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are actually hiring outside consultants versus having just

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someone inside that quote unquote will handle it?

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It's hard to say because the sweet spot

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for having a dedicated compliance person is right

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around maybe five, 600 million assets under management.

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But smaller firms, I mean, I don't have

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to tell you that the owners of the

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firm, it's like, who's going to volunteer and

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someone takes a step backwards and leaves the

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other partner volunteering for the CCO position.

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So it is someone in house, but has

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a million other things to do.

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And really, okay, is concerned about compliance, but

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not concerned enough to put it in front

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of client concerns.

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And that's understandable.

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So having a consultant is really helpful to

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let you know what's important to do, what

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you can sort of glide over and what

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the regulators are going to be looking for

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when they come in.

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Yeah, when I first got into this business,

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I don't know, you're in there for like

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two minutes and people are like, do you

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ever want your own firm?

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And my answer was always no.

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Well, why?

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Because I don't want to deal with compliance.

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I don't ever want to deal with compliance.

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And luckily, I found a partner who has

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a history of dealing with compliance and is

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good at it and was willing to take

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that on.

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Otherwise, I don't know that I ever would

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have done it.

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That's what I hear when potential clients call

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and talk about maybe leaving their current firm

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or breaking away from a firm and starting

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their own firm.

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That's the major issue with them is that,

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I mean, maybe besides bringing clients over, but

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how do I handle the compliance?

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Because it has gotten such a bad rap

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and there's a great fear out there of,

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well, if I'm responsible for compliance, I'm going

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to get into trouble because I'm not going

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to be able to do it.

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So you deal with both the SEC and

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various states, I guess, not just one, probably

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a whole bunch of them.

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Do you prefer one over the other?

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Which path is more onerous on you?

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It's interesting because like I said, I'm doing

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more for the SEC registered firms.

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So I'm more sort of invested in that

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and that if the SEC comes in and

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there's problems, I mean, it's the owner that

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looks over to me and says, why are

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we having this problem?

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So I get that feeling in the pit

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of my stomach when I get a notice

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from clients that we just heard from the

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SEC, we're going to have an audit.

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And it's not a great feeling because I

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really am part of the firm and most

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of my clients have been with me 10,

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15, even some 20 years.

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So it's not just I'm invested professionally, I'm

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invested from a personal and emotional standpoint.

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The state is the way someone put it

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to me, a client put it to me,

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is like a state exam is like a

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colonoscopy.

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It's never as bad as you think it

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is.

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An SEC exam is like a colonoscopy, but

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without anesthesia.

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And it's far worse than you can ever

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imagine.

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So that's kind of how it is.

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So a state exam is less onerous in

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a lot of ways.

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It's like a mile wide and an inch

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deep and an SEC exam is a mile

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wide and a mile deep.

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Speaking of colonoscopies.

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Yeah.

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So, but you know, it's changing.

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When I first started, there was a clear

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dichotomy between what states required and what the

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SEC required.

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States were much less onerous.

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And the state personnel, the people doing the

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exams were not all that professional.

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In Massachusetts, I had an exam where the

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week before the guy was a taxi driver.

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And obviously nothing wrong with being the taxi

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driver, but it's not the level of professionalism

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that you would get with the SEC.

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And that's kind of how the exams would

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run.

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It was very surface.

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Did you have a signed client contract?

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Do you have an ADV in the client

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file?

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Very sort of books and records, very simple,

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straightforward things.

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But that's changed.

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And Massachusetts is really the leader in that.

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That a lot of states are either adopting

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the SEC rules that have been passed, expressly

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adopting them like Massachusetts.

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So going back to 2009, they adopted the

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new SEC compliance rule.

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They adopted the new at the same year,

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the code of ethics rule.

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And more recently, the new advertising and marketing

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rules that were passed back in or enacted

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00:11:38,320 --> 00:11:39,760
back in 2022.

273
00:11:40,980 --> 00:11:44,480
So a compliance manual and a compliance program

274
00:11:45,120 --> 00:11:48,820
for a state registered advisor in Massachusetts is

275
00:11:48,820 --> 00:11:52,100
not gonna look that much different than an

276
00:11:52,100 --> 00:11:53,660
SEC registered advisor.

277
00:11:55,560 --> 00:11:58,140
And other states like Connecticut may not have

278
00:11:58,140 --> 00:12:00,700
expressly adopted those rules.

279
00:12:01,120 --> 00:12:04,820
But when it comes to practice, they really

280
00:12:04,820 --> 00:12:05,200
have.

281
00:12:05,200 --> 00:12:09,060
They're looking for things that previously they would

282
00:12:09,060 --> 00:12:11,660
only look for in an SEC examination.

283
00:12:12,780 --> 00:12:15,480
And some states are even outstripping the SEC

284
00:12:15,480 --> 00:12:18,640
like Massachusetts with their cybersecurity laws.

285
00:12:18,780 --> 00:12:21,400
And Massachusetts and California are two states that

286
00:12:22,190 --> 00:12:26,900
have more onerous cybersecurity rules and regulations than

287
00:12:26,900 --> 00:12:28,520
does the SEC.

288
00:12:28,980 --> 00:12:31,680
Yeah, well, I'll let Kevin speak to the

289
00:12:31,680 --> 00:12:31,940
state.

290
00:12:32,100 --> 00:12:33,880
Knock on wood, I haven't had the state

291
00:12:33,880 --> 00:12:34,960
come in yet.

292
00:12:34,960 --> 00:12:39,100
But Kevin did early in his new firm's

293
00:12:39,100 --> 00:12:39,580
life.

294
00:12:39,940 --> 00:12:41,960
And what were they focused on, Kevin?

295
00:12:42,060 --> 00:12:42,760
Was it cybersecurity?

296
00:12:43,060 --> 00:12:43,480
What was it?

297
00:12:44,360 --> 00:12:47,180
They really focused on everything.

298
00:12:47,380 --> 00:12:49,940
And I would agree to a certain extent

299
00:12:49,940 --> 00:12:54,360
with Scott in terms of the requests were

300
00:12:54,360 --> 00:12:55,540
a mile wide.

301
00:12:55,840 --> 00:12:59,780
And having not been through an SEC examination,

302
00:13:00,040 --> 00:13:02,160
I don't know exactly how to compare how

303
00:13:02,160 --> 00:13:02,900
deep it went.

304
00:13:03,440 --> 00:13:06,240
But they did want a lot of information.

305
00:13:06,800 --> 00:13:08,760
And they did want it and expect it

306
00:13:08,760 --> 00:13:11,500
in a very short period of time.

307
00:13:12,760 --> 00:13:15,480
And they came in shortly after I had

308
00:13:15,480 --> 00:13:19,420
been registered, which so it surprised me how

309
00:13:19,420 --> 00:13:23,320
quickly they ended up coming in, figuring I

310
00:13:23,320 --> 00:13:26,080
was a new independent RIA.

311
00:13:26,560 --> 00:13:28,540
I was just building up my practice and

312
00:13:28,540 --> 00:13:30,060
feeling like there wasn't going to be a

313
00:13:30,060 --> 00:13:32,340
lot for them to look at.

314
00:13:32,340 --> 00:13:36,300
But they were very thorough in terms of

315
00:13:36,300 --> 00:13:37,720
collecting information.

316
00:13:38,840 --> 00:13:40,140
And I was a bit surprised.

317
00:13:40,780 --> 00:13:42,920
At the time, I was working from home.

318
00:13:43,020 --> 00:13:44,360
This was during COVID.

319
00:13:44,560 --> 00:13:47,640
In fact, I ended up having the examination

320
00:13:48,260 --> 00:13:50,420
backed up a couple of weeks because someone

321
00:13:50,420 --> 00:13:52,600
in my household contracted COVID.

322
00:13:52,960 --> 00:13:54,660
So that gave me a little bit of

323
00:13:54,660 --> 00:13:57,400
extra time to luckily get prepared.

324
00:13:58,320 --> 00:14:01,100
But they wanted a lot of information.

325
00:14:01,100 --> 00:14:03,000
And they came in, they had a full

326
00:14:03,000 --> 00:14:03,380
team.

327
00:14:03,600 --> 00:14:04,780
There was three of them.

328
00:14:05,320 --> 00:14:08,840
And I remember sitting down at the kitchen

329
00:14:08,840 --> 00:14:10,580
table, which is where we were having our

330
00:14:10,580 --> 00:14:13,060
meeting and apologizing to them.

331
00:14:13,220 --> 00:14:15,320
I was a little bit, I expected that

332
00:14:15,320 --> 00:14:18,620
it would be different being in someone's home.

333
00:14:18,640 --> 00:14:22,180
But they said that 60 to 70%

334
00:14:22,180 --> 00:14:27,660
of the examinations they were performing were small

335
00:14:27,660 --> 00:14:31,400
RIAs that were working from home, which just

336
00:14:31,400 --> 00:14:32,140
surprised me.

337
00:14:32,380 --> 00:14:35,400
So they came in, they looked at everything,

338
00:14:35,500 --> 00:14:38,380
very thorough, wanted everything.

339
00:14:38,760 --> 00:14:40,720
They started really with the ADV.

340
00:14:41,180 --> 00:14:42,520
That was the bulk of it.

341
00:14:42,580 --> 00:14:46,000
They went through the ADV and pretty much

342
00:14:46,000 --> 00:14:48,800
anything that was in there that said it

343
00:14:48,800 --> 00:14:52,220
was gonna be happening, they wanted detailed proof

344
00:14:52,220 --> 00:14:54,320
throughout the year and a half that I

345
00:14:54,320 --> 00:14:56,560
had been up and running that those things

346
00:14:56,560 --> 00:14:57,160
were happening.

347
00:14:57,780 --> 00:14:59,880
And then there was obviously some basics, but

348
00:14:59,880 --> 00:15:03,280
that was really the bulk of it was

349
00:15:03,280 --> 00:15:06,320
they wanted to see that I had all

350
00:15:06,320 --> 00:15:08,600
of my programs in place for, as you

351
00:15:08,600 --> 00:15:16,020
said, code of ethics, privacy policy, cybersecurity, transition

352
00:15:16,020 --> 00:15:19,840
plans where I was just myself, should anything

353
00:15:19,840 --> 00:15:23,880
happen to me, how would that play out

354
00:15:23,880 --> 00:15:25,240
and what was the evidence?

355
00:15:25,740 --> 00:15:29,000
And also they did wanna make sure that

356
00:15:29,000 --> 00:15:33,320
everything in my house where I worked was

357
00:15:33,320 --> 00:15:35,800
as secure as you'd expect it to be

358
00:15:36,320 --> 00:15:38,600
in an office building.

359
00:15:39,600 --> 00:15:41,640
So they were pretty detailed.

360
00:15:42,520 --> 00:15:44,700
And then the thing that was really interesting

361
00:15:44,700 --> 00:15:47,640
was it only took them about six hours

362
00:15:47,640 --> 00:15:48,340
with me.

363
00:15:48,840 --> 00:15:50,940
Three of it was sitting down and just

364
00:15:50,940 --> 00:15:54,120
having, and basically I'd call it an audit

365
00:15:54,120 --> 00:15:56,320
inquiry and discussion.

366
00:15:56,880 --> 00:15:59,700
And then they took everything and disappeared.

367
00:16:00,980 --> 00:16:02,800
I followed up 30 days later.

368
00:16:03,260 --> 00:16:04,580
They had no information for me.

369
00:16:04,680 --> 00:16:07,520
I followed up 90 days after that to

370
00:16:07,520 --> 00:16:09,480
see if they had any updates, feedback.

371
00:16:10,780 --> 00:16:13,000
Was there anything I needed to be concerned

372
00:16:13,000 --> 00:16:13,420
with?

373
00:16:13,940 --> 00:16:15,620
And they said they had no updates.

374
00:16:16,260 --> 00:16:18,020
And then I said, at this point, I'll

375
00:16:18,020 --> 00:16:20,440
just leave well alone if I don't hear

376
00:16:20,440 --> 00:16:20,800
anything.

377
00:16:20,800 --> 00:16:23,260
I don't wanna remind them to look to

378
00:16:23,260 --> 00:16:25,540
find anything to ding me with.

379
00:16:26,480 --> 00:16:29,140
And I kind of forgot about it until

380
00:16:29,140 --> 00:16:31,380
this past fall when a letter showed up

381
00:16:31,380 --> 00:16:33,700
with a couple of things that they found,

382
00:16:34,420 --> 00:16:39,760
nothing that was anything major that they were

383
00:16:39,760 --> 00:16:41,120
writing me up for.

384
00:16:41,260 --> 00:16:43,200
And I recall them being things that we

385
00:16:43,200 --> 00:16:45,580
discussed about at the table that day.

386
00:16:46,020 --> 00:16:49,900
And I had two weeks to respond in

387
00:16:49,900 --> 00:16:51,560
writing as to how those things had been

388
00:16:51,560 --> 00:16:52,060
handled.

389
00:16:52,760 --> 00:16:56,980
And several of them had been changed multiple

390
00:16:56,980 --> 00:16:59,640
times in terms of how I was handling

391
00:16:59,640 --> 00:17:02,680
them because the audit or examination was so

392
00:17:02,680 --> 00:17:03,339
long ago.

393
00:17:03,619 --> 00:17:08,040
But they covered the ADV pretty much in

394
00:17:08,040 --> 00:17:10,579
depth and wanted evidence to support that all

395
00:17:10,579 --> 00:17:12,520
those things were taking place as they should.

396
00:17:13,280 --> 00:17:14,760
Hey, Scott, when they come in, are they

397
00:17:14,760 --> 00:17:16,220
looking to catch you?

398
00:17:16,300 --> 00:17:18,160
Are they looking to find wrongdoing?

399
00:17:18,440 --> 00:17:21,180
Or is the goal just to come through

400
00:17:21,180 --> 00:17:23,119
and say, yeah, we checked them out and

401
00:17:23,119 --> 00:17:23,540
they're okay?

402
00:17:24,540 --> 00:17:27,099
No, I think they're looking to find something.

403
00:17:27,319 --> 00:17:28,960
I mean, it's kind of boring for them

404
00:17:28,960 --> 00:17:31,500
just to come in and find everything is

405
00:17:31,500 --> 00:17:31,960
okay.

406
00:17:33,280 --> 00:17:34,560
You know, they kind of, I don't know

407
00:17:34,560 --> 00:17:36,860
if they, you know, their performance is based

408
00:17:36,860 --> 00:17:37,300
on it.

409
00:17:37,640 --> 00:17:39,820
Certainly the SEC is looking for wrongdoing.

410
00:17:42,100 --> 00:17:45,160
I assume the state regulators are doing the

411
00:17:45,160 --> 00:17:45,960
same as well.

412
00:17:46,080 --> 00:17:47,600
I mean, it's kind of fun for them

413
00:17:47,600 --> 00:17:51,020
to dig into something and find it.

414
00:17:51,260 --> 00:17:53,020
And it doesn't even have to be anything

415
00:17:53,020 --> 00:17:54,320
nefarious.

416
00:17:54,580 --> 00:17:56,720
It could be they just find that you're

417
00:17:56,720 --> 00:17:59,300
doing something wrong that you need to correct

418
00:17:59,300 --> 00:18:00,060
or improve.

419
00:18:00,840 --> 00:18:06,240
You know, not everything is, you know, fraud

420
00:18:06,240 --> 00:18:09,560
or, you know, illegal activity or, you know,

421
00:18:10,040 --> 00:18:13,160
a lot of the problems with advisors' compliance

422
00:18:13,160 --> 00:18:17,240
is lack of care.

423
00:18:18,500 --> 00:18:21,700
You know, so it's not always that they're

424
00:18:21,700 --> 00:18:23,740
trying to find these terrible things.

425
00:18:23,760 --> 00:18:25,380
They're just trying to find things.

426
00:18:25,820 --> 00:18:27,820
Something to validate their existence.

427
00:18:28,820 --> 00:18:30,340
So I haven't been through a state audit,

428
00:18:30,440 --> 00:18:32,100
but I have been through an SEC audit

429
00:18:32,100 --> 00:18:33,800
that you were a part of at my

430
00:18:33,800 --> 00:18:35,480
previous firm.

431
00:18:37,000 --> 00:18:39,340
Three auditors similar to you, Kevin, came in

432
00:18:39,340 --> 00:18:43,540
three days before Christmas and stayed for two

433
00:18:43,540 --> 00:18:44,240
or three days.

434
00:18:44,460 --> 00:18:46,560
And our internal compliance person at the time

435
00:18:46,560 --> 00:18:47,440
was six months pregnant.

436
00:18:47,740 --> 00:18:50,760
So it was kind of a crazy time.

437
00:18:50,760 --> 00:18:53,980
And again, similar to you, Kevin, you know,

438
00:18:54,000 --> 00:18:55,220
it was like a year later they sent

439
00:18:55,220 --> 00:18:57,780
a notice of, yeah, they found some things,

440
00:18:57,840 --> 00:19:00,460
but I don't remember them being anything more

441
00:19:00,460 --> 00:19:01,020
than minor.

442
00:19:02,080 --> 00:19:04,080
Yeah, no, I don't think they were.

443
00:19:04,460 --> 00:19:06,600
And that's the hallmark, certainly at the SEC

444
00:19:06,600 --> 00:19:10,640
level of exams, is that advisors don't ever

445
00:19:10,640 --> 00:19:12,120
feel like there's any closure.

446
00:19:12,440 --> 00:19:15,400
You'll get a deficiency letter and you'll respond

447
00:19:15,400 --> 00:19:16,660
to the deficiency letter.

448
00:19:16,800 --> 00:19:20,880
And unless they find something like either you

449
00:19:20,880 --> 00:19:23,480
totally missed what they were saying or your

450
00:19:23,480 --> 00:19:27,480
response was just so lame that you really

451
00:19:27,480 --> 00:19:29,040
will never hear from them again.

452
00:19:29,680 --> 00:19:31,580
But they'll file away the letter and the

453
00:19:31,580 --> 00:19:32,040
response.

454
00:19:32,120 --> 00:19:33,460
And the next time they come in, they

455
00:19:33,460 --> 00:19:36,760
will match what you're doing against what you

456
00:19:36,760 --> 00:19:38,680
said you were doing in your response to

457
00:19:38,680 --> 00:19:38,940
them.

458
00:19:39,980 --> 00:19:41,600
How often are they supposed to come in,

459
00:19:41,640 --> 00:19:43,000
both the state and the SEC?

460
00:19:44,500 --> 00:19:46,540
I don't think there's any supposed to.

461
00:19:46,540 --> 00:19:49,540
I know in Connecticut and Massachusetts, it's really,

462
00:19:50,580 --> 00:19:52,400
they like to come in every couple of

463
00:19:52,400 --> 00:19:52,880
years.

464
00:19:53,360 --> 00:19:55,880
Connecticut is really, they're good about that.

465
00:19:56,080 --> 00:19:57,660
I mean, quote unquote, good about that.

466
00:19:57,760 --> 00:20:00,100
They do sort of keep to that timetable.

467
00:20:01,100 --> 00:20:03,400
The SEC, when you first become registered, will

468
00:20:03,400 --> 00:20:06,780
do a nice to meet you exam.

469
00:20:07,020 --> 00:20:08,920
It's a very simplified exam.

470
00:20:09,480 --> 00:20:12,140
The document request list is maybe a page

471
00:20:12,140 --> 00:20:13,740
and a half, two pages.

472
00:20:14,480 --> 00:20:16,440
And really, you should be able to produce,

473
00:20:17,200 --> 00:20:19,720
I would say, 70% of what they

474
00:20:19,720 --> 00:20:21,100
want within an hour.

475
00:20:21,560 --> 00:20:23,900
And we're talking compliance manual, code of ethics,

476
00:20:24,460 --> 00:20:26,480
an organizational chart.

477
00:20:29,300 --> 00:20:31,560
And that's the kind of exam that you

478
00:20:31,560 --> 00:20:35,100
want to excel in because it's the old

479
00:20:35,100 --> 00:20:37,040
adage, you get one chance to make a

480
00:20:37,040 --> 00:20:37,780
first impression.

481
00:20:38,300 --> 00:20:40,780
If they're happy with you, if they see

482
00:20:40,780 --> 00:20:42,740
that you have your act together, if you've

483
00:20:42,740 --> 00:20:45,860
put a compliance program together, the way that

484
00:20:45,860 --> 00:20:47,780
they want you to, so in other words,

485
00:20:48,960 --> 00:20:52,280
do your risk assessment based on the risks

486
00:20:52,280 --> 00:20:54,200
that you find, then you draft your policies

487
00:20:54,200 --> 00:20:56,660
and procedures, and then you implement testing.

488
00:20:57,000 --> 00:20:58,760
And it's sort of a circular process.

489
00:20:59,600 --> 00:21:02,040
If they see that and that you're adhering

490
00:21:02,040 --> 00:21:04,420
to it, then they may not come in

491
00:21:04,420 --> 00:21:06,500
for five years or seven years.

492
00:21:06,600 --> 00:21:08,320
I mean, they're really overtaxed.

493
00:21:08,500 --> 00:21:12,420
And the examiners that came in and visited

494
00:21:12,420 --> 00:21:15,600
me, they said basically just that.

495
00:21:15,880 --> 00:21:19,800
I asked that question, and they said that

496
00:21:19,800 --> 00:21:22,320
they could be back in two years, or

497
00:21:22,320 --> 00:21:23,800
that I might not see them for 20

498
00:21:23,800 --> 00:21:24,160
years.

499
00:21:24,600 --> 00:21:27,620
So it really wasn't all that helpful, but

500
00:21:27,620 --> 00:21:30,040
I'm hoping that maybe it's the 20.

501
00:21:31,300 --> 00:21:33,180
Yeah, it might well be.

502
00:21:33,320 --> 00:21:36,260
I mean, they're not staffed well.

503
00:21:36,460 --> 00:21:37,400
I mean, it's just...

504
00:21:38,560 --> 00:21:40,380
I always thought that like advisors in the

505
00:21:40,380 --> 00:21:43,800
Western part of Massachusetts, got examined a lot

506
00:21:43,800 --> 00:21:47,120
less than in the Boston area just because

507
00:21:47,120 --> 00:21:48,980
of the travel time.

508
00:21:49,680 --> 00:21:52,520
And they can do more than one in

509
00:21:52,520 --> 00:21:52,980
a day.

510
00:21:53,380 --> 00:21:55,240
So I don't know if that still holds

511
00:21:55,240 --> 00:21:55,860
true though.

512
00:21:56,240 --> 00:21:58,840
Do you think that the priorities, I guess,

513
00:21:58,900 --> 00:22:01,520
specifically with the SEC change depending on who's

514
00:22:01,520 --> 00:22:02,400
in charge in Washington?

515
00:22:06,040 --> 00:22:08,840
I think narrowly.

516
00:22:09,140 --> 00:22:12,780
I think maybe enforcement's gonna change.

517
00:22:13,740 --> 00:22:17,500
I think we've always seen some changes with

518
00:22:17,500 --> 00:22:21,740
ESG, environmental, social and governance.

519
00:22:22,900 --> 00:22:26,860
I think the SEC has taken kind of

520
00:22:26,860 --> 00:22:27,200
its...

521
00:22:27,720 --> 00:22:29,220
Pulled back from some of these rules.

522
00:22:30,260 --> 00:22:31,380
So that's something that's...

523
00:22:32,380 --> 00:22:36,360
I was gonna mention in the current topics

524
00:22:36,360 --> 00:22:38,520
or the topics of interest, but I don't

525
00:22:38,520 --> 00:22:40,780
know if that is still true.

526
00:22:42,160 --> 00:22:44,700
But I do think...

527
00:22:44,700 --> 00:22:46,720
I mean, it hasn't happened with the SEC,

528
00:22:46,920 --> 00:22:48,260
but you see with the IRS that they're

529
00:22:48,260 --> 00:22:49,580
cutting 6,000 people.

530
00:22:49,760 --> 00:22:52,800
And just by a numbers game, it's gonna

531
00:22:52,800 --> 00:22:53,660
mean audits.

532
00:22:53,780 --> 00:22:55,660
Even if those weren't auditors, they were doing

533
00:22:55,660 --> 00:22:58,280
something that other people are now gonna have

534
00:22:58,280 --> 00:22:58,800
to do.

535
00:22:59,260 --> 00:23:02,740
It means that the number of audits is

536
00:23:02,740 --> 00:23:03,640
going to go down.

537
00:23:04,460 --> 00:23:06,100
I assume if there's gonna be cuts at

538
00:23:06,100 --> 00:23:08,340
the SEC or if there's a hiring freeze,

539
00:23:08,740 --> 00:23:10,560
it's gonna be the same sort of thing.

540
00:23:10,560 --> 00:23:13,800
It's gonna be the frontline people that are

541
00:23:13,800 --> 00:23:14,500
gonna get cut.

542
00:23:17,020 --> 00:23:19,000
Scott, how often...

543
00:23:19,000 --> 00:23:22,260
Obviously, I'll assume that most of your clients

544
00:23:22,260 --> 00:23:25,780
do very well with their examinations because you

545
00:23:25,780 --> 00:23:26,780
have them prepared.

546
00:23:27,400 --> 00:23:31,020
How often do you get called into service

547
00:23:31,020 --> 00:23:34,900
because somebody has been through an examination that

548
00:23:34,900 --> 00:23:36,760
was a little bit tougher for them and

549
00:23:36,760 --> 00:23:39,620
they have found that they have a lot

550
00:23:39,620 --> 00:23:41,860
to clean up and maybe some help with

551
00:23:41,860 --> 00:23:45,120
pulling together that response to the deficiency letter

552
00:23:45,120 --> 00:23:47,860
and making sure that if someone comes in

553
00:23:47,860 --> 00:23:49,840
to examine them again that they don't run

554
00:23:49,840 --> 00:23:51,980
into the same issues because the second time

555
00:23:51,980 --> 00:23:54,620
through, it'll be a larger problem for them?

556
00:23:55,500 --> 00:23:56,540
Yeah, it happens.

557
00:23:56,720 --> 00:24:01,300
I mean, it's happened recently because they get

558
00:24:01,300 --> 00:24:05,880
such a large deficiency list that the examiners

559
00:24:05,880 --> 00:24:08,440
themselves suggest that maybe you need some outside

560
00:24:08,440 --> 00:24:09,100
help here.

561
00:24:09,100 --> 00:24:11,920
That you're not doing anything wrong.

562
00:24:12,200 --> 00:24:14,540
And that's always been the sort of, you

563
00:24:14,540 --> 00:24:17,840
know, where advisors throw their hands up that,

564
00:24:18,400 --> 00:24:19,880
you know, I take care of my clients.

565
00:24:20,180 --> 00:24:21,480
My clients are happy.

566
00:24:21,840 --> 00:24:23,000
You know, the rest of this is kind

567
00:24:23,000 --> 00:24:26,520
of BS and that's where mistakes are made.

568
00:24:27,060 --> 00:24:28,800
So it does happen.

569
00:24:28,940 --> 00:24:32,080
But let me clear up, disabuse you of,

570
00:24:32,580 --> 00:24:34,800
you know, yes, my clients tend to do

571
00:24:34,800 --> 00:24:36,560
very well but that does not mean they

572
00:24:36,560 --> 00:24:37,620
don't get deficiencies.

573
00:24:37,620 --> 00:24:39,280
I mean, it's rare.

574
00:24:39,520 --> 00:24:41,540
I mean, I've had, I've gone through audits

575
00:24:41,540 --> 00:24:44,300
where, yeah, there's been one or two deficiencies

576
00:24:44,300 --> 00:24:47,300
and that is a unique thing.

577
00:24:47,360 --> 00:24:50,980
And it's really more to the client than

578
00:24:50,980 --> 00:24:53,520
to me because I can put a compliance

579
00:24:53,520 --> 00:24:56,400
program in place that is, you know, second

580
00:24:56,400 --> 00:25:01,380
to none, highly customized, meets the requirements of

581
00:25:01,380 --> 00:25:04,760
the advisor, meets all SEC requirements, is updated.

582
00:25:05,780 --> 00:25:07,240
But I'm not there doing it.

583
00:25:07,240 --> 00:25:10,380
And, you know, I can do their annual

584
00:25:10,380 --> 00:25:13,040
review where you test the adequacy and effectiveness

585
00:25:13,040 --> 00:25:15,420
and I can tell them, look, you're not

586
00:25:15,420 --> 00:25:16,480
doing these things.

587
00:25:16,580 --> 00:25:17,940
You need to do them.

588
00:25:18,300 --> 00:25:20,980
But again, it really is a commitment on

589
00:25:20,980 --> 00:25:23,820
the advisor's part to do these things.

590
00:25:26,520 --> 00:25:27,540
Go ahead, Kev.

591
00:25:28,340 --> 00:25:28,660
Go ahead.

592
00:25:28,760 --> 00:25:30,020
I was gonna say, where do you find,

593
00:25:30,260 --> 00:25:32,900
you mentioned earlier that, you know, the tough

594
00:25:32,900 --> 00:25:35,100
thing is that for especially the smaller the

595
00:25:35,100 --> 00:25:38,420
advisor and maybe it has to do with

596
00:25:38,420 --> 00:25:40,900
their interest level and the compliance piece, but

597
00:25:40,900 --> 00:25:44,240
they're more focused on, they have to try

598
00:25:44,240 --> 00:25:46,960
to get their client work done first and

599
00:25:46,960 --> 00:25:49,760
also get the compliance work done as well.

600
00:25:49,860 --> 00:25:53,180
But you skip a couple days of compliance

601
00:25:53,180 --> 00:25:55,180
steps that you're supposed to be following based

602
00:25:55,180 --> 00:25:58,360
on your program, it becomes tough to catch

603
00:25:58,360 --> 00:25:59,080
back up.

604
00:25:59,500 --> 00:26:02,360
What do you see is the typical deficiency

605
00:26:02,360 --> 00:26:06,700
that occurs the most in terms of trying

606
00:26:06,700 --> 00:26:08,080
to follow their own program?

607
00:26:08,980 --> 00:26:11,200
I think record keeping.

608
00:26:11,920 --> 00:26:17,160
Record keeping and documenting the output of their

609
00:26:17,160 --> 00:26:18,400
policies and procedures.

610
00:26:19,120 --> 00:26:22,220
Regulators are kind of odd in this way.

611
00:26:22,800 --> 00:26:25,840
If you're doing something and clearly doing it,

612
00:26:25,960 --> 00:26:28,240
but if you're not documenting it, you haven't

613
00:26:28,240 --> 00:26:29,440
done it in their eyes.

614
00:26:30,340 --> 00:26:33,520
Conversely, if you're putting down, like if you're

615
00:26:33,520 --> 00:26:36,340
keeping an Excel spreadsheet that you're doing this

616
00:26:36,340 --> 00:26:38,140
and that, but you're not actually doing it,

617
00:26:38,340 --> 00:26:39,500
they tend to believe you.

618
00:26:39,560 --> 00:26:41,080
It's just very odd that way.

619
00:26:41,580 --> 00:26:46,420
So documentation is really ultra important when it

620
00:26:46,420 --> 00:26:48,140
comes to your compliance program.

621
00:26:50,200 --> 00:26:53,200
And, you know, that goes to then keeping

622
00:26:53,200 --> 00:26:54,200
books and records.

623
00:26:54,820 --> 00:26:57,460
So what happens is, you know, in a

624
00:26:57,460 --> 00:27:00,280
smaller firm, again, an SEC-registered firm, I

625
00:27:00,280 --> 00:27:02,240
mean, you gotta collect things quarterly for the

626
00:27:02,240 --> 00:27:04,420
Code of Ethics, a quarterly transaction report.

627
00:27:04,540 --> 00:27:07,860
You're supposed to review either the transaction report

628
00:27:07,860 --> 00:27:11,520
or your employee's brokerage statements, and you're supposed

629
00:27:11,520 --> 00:27:13,140
to document that you've done it.

630
00:27:14,620 --> 00:27:18,000
And, you know, I'm not obviously mentioning names,

631
00:27:18,220 --> 00:27:20,060
but, and this is what I hear, never

632
00:27:20,060 --> 00:27:22,780
with my clients, but, you know, they get

633
00:27:22,780 --> 00:27:24,720
notice of an audit and they're up late

634
00:27:24,720 --> 00:27:25,140
at night.

635
00:27:25,140 --> 00:27:27,340
The two weeks they get to put documents

636
00:27:27,340 --> 00:27:31,700
together, you know, recreating two years worth of

637
00:27:31,700 --> 00:27:33,820
quarterly transaction reports.

638
00:27:34,460 --> 00:27:37,540
And, you know, they have a blue pen

639
00:27:37,540 --> 00:27:39,840
and a red pen and a pencil to

640
00:27:39,840 --> 00:27:41,520
make sure all the signatures don't look like

641
00:27:41,520 --> 00:27:42,760
they were done the same evening.

642
00:27:44,140 --> 00:27:47,320
That's where people tend to go astray.

643
00:27:49,640 --> 00:27:53,340
You had mentioned earlier about, you know, sort

644
00:27:53,340 --> 00:27:55,200
of hot topics and what the regulators are

645
00:27:55,200 --> 00:27:56,720
focusing on in 2025.

646
00:27:57,160 --> 00:27:58,300
What are some of those?

647
00:27:59,760 --> 00:28:03,700
So, you know, the SEC is very good

648
00:28:03,700 --> 00:28:06,180
in this way in that every year they

649
00:28:06,180 --> 00:28:11,380
release a exam priorities document, and it's pretty

650
00:28:11,380 --> 00:28:11,860
substantial.

651
00:28:12,000 --> 00:28:13,640
It could be 40, 50, 60 pages.

652
00:28:14,100 --> 00:28:16,880
It's for broker dealers and investment advisors.

653
00:28:18,240 --> 00:28:20,880
And so, you know, record keeping is a

654
00:28:20,880 --> 00:28:24,780
big one, cybersecurity, and they've not changed over

655
00:28:24,780 --> 00:28:25,320
the years.

656
00:28:25,460 --> 00:28:27,660
Maybe they add one, take one away, but,

657
00:28:27,760 --> 00:28:31,660
you know, record keeping, cybersecurity has been a

658
00:28:31,660 --> 00:28:34,240
constant one over the last few years.

659
00:28:35,200 --> 00:28:38,200
Conflicts of interest, which is important.

660
00:28:38,700 --> 00:28:41,660
And, you know, when it comes to conflicts,

661
00:28:42,780 --> 00:28:44,400
the answer is disclosure.

662
00:28:44,820 --> 00:28:46,480
Every advisor has a conflict.

663
00:28:46,620 --> 00:28:47,840
If you're charging a fee, you have a

664
00:28:47,840 --> 00:28:48,200
conflict.

665
00:28:49,440 --> 00:28:53,920
And it all can be remedied with disclosure.

666
00:28:54,600 --> 00:28:57,740
And, you know, I've always said that you

667
00:28:57,740 --> 00:29:00,560
can do, tongue in cheek, you can do

668
00:29:00,560 --> 00:29:02,200
anything you want to do, up to and

669
00:29:02,200 --> 00:29:04,520
including fraud, as long as you disclose it.

670
00:29:04,940 --> 00:29:06,760
I mean, you can front run your clients.

671
00:29:06,800 --> 00:29:10,360
And I've seen ADV2As where, you know, advisors

672
00:29:10,360 --> 00:29:12,680
will say, we trade ahead of our clients.

673
00:29:13,080 --> 00:29:17,540
And, you know, that's, you know, not necessarily

674
00:29:17,540 --> 00:29:19,420
ethical, or a lot of people won't feel

675
00:29:19,420 --> 00:29:21,860
that's ethical, but the SEC can't do anything

676
00:29:21,860 --> 00:29:24,000
about it if you've disclosed it in your

677
00:29:24,000 --> 00:29:27,040
ADV2A, because your client or potential client has

678
00:29:27,040 --> 00:29:28,100
been put on notice.

679
00:29:29,340 --> 00:29:31,560
So, you know, the flip side of conflicts

680
00:29:31,560 --> 00:29:34,460
is, you know, if you can't eliminate them,

681
00:29:34,720 --> 00:29:35,980
you disclose them.

682
00:29:36,220 --> 00:29:39,500
That's why the ADV2A is so important.

683
00:29:40,620 --> 00:29:43,060
And, you know, I don't know, I hear

684
00:29:43,060 --> 00:29:45,240
every once in a while that, you know,

685
00:29:45,360 --> 00:29:47,000
advisors come back to me and say, oh,

686
00:29:47,040 --> 00:29:49,460
my client read the ADV2A and needs this

687
00:29:49,460 --> 00:29:50,560
explained to them.

688
00:29:51,540 --> 00:29:53,580
The ADV2A is supposed to be for your

689
00:29:53,580 --> 00:29:56,160
clients, but I look at, you know, compliance

690
00:29:56,160 --> 00:29:56,740
two ways.

691
00:29:56,860 --> 00:29:59,980
One is client facing, and one is regulator

692
00:29:59,980 --> 00:30:00,460
facing.

693
00:30:00,900 --> 00:30:05,720
And to me, the ADV2A serves two purposes,

694
00:30:05,720 --> 00:30:08,580
because, you know, as Kevin said, even in

695
00:30:08,580 --> 00:30:10,200
a state audit, they're going to pick through

696
00:30:10,200 --> 00:30:11,220
it line by line.

697
00:30:11,360 --> 00:30:14,200
And they're going to make sure that you're

698
00:30:14,200 --> 00:30:18,080
disclosing what you need to disclose and doing

699
00:30:18,080 --> 00:30:21,060
what you say you're doing in your ADV2A.

700
00:30:21,120 --> 00:30:23,960
And if you're not, that's really problematic.

701
00:30:25,600 --> 00:30:28,920
Vendor due diligence is another area to make

702
00:30:28,920 --> 00:30:34,000
sure they have the protections that you're supposed

703
00:30:34,000 --> 00:30:37,420
to afford your clients when it comes to,

704
00:30:37,420 --> 00:30:41,960
you know, either cybersecurity or identity theft, things

705
00:30:41,960 --> 00:30:42,680
like that.

706
00:30:42,680 --> 00:30:47,300
You know, and this is a hard area

707
00:30:47,300 --> 00:30:48,000
for advisors.

708
00:30:48,540 --> 00:30:50,200
You know, when I put together a compliance

709
00:30:50,200 --> 00:30:52,720
manual, there's a vendor due diligence questionnaire.

710
00:30:53,860 --> 00:30:57,360
But either advisors have really big vendors, like

711
00:30:57,360 --> 00:30:59,340
Schwab is not going to complete your vendor

712
00:30:59,340 --> 00:31:00,680
due diligence questionnaire.

713
00:31:01,500 --> 00:31:03,880
And, you know, sort of the more small

714
00:31:03,880 --> 00:31:07,640
and pop, mom and pop, maybe people that

715
00:31:07,640 --> 00:31:09,600
help with your computer systems are not going

716
00:31:09,600 --> 00:31:10,640
to do it because they're going to look

717
00:31:10,640 --> 00:31:12,220
at it and their eyes are going to,

718
00:31:12,240 --> 00:31:13,720
you know, roll back in their head.

719
00:31:13,900 --> 00:31:16,620
Well, and there are so many, every day

720
00:31:16,620 --> 00:31:18,040
there's new technology that comes out.

721
00:31:18,080 --> 00:31:19,880
It's interesting for us to use, you know,

722
00:31:20,020 --> 00:31:23,060
tax planning, income planning, whatever, insurance planning, whatever

723
00:31:23,060 --> 00:31:25,280
you want that makes our job easier.

724
00:31:26,160 --> 00:31:28,100
And yeah, they may fill it out and

725
00:31:28,100 --> 00:31:28,800
some may not.

726
00:31:28,920 --> 00:31:31,040
But how many of those do you find

727
00:31:31,040 --> 00:31:32,020
are noncompliant?

728
00:31:32,320 --> 00:31:32,900
About 99%.

729
00:31:33,680 --> 00:31:36,000
I mean, yeah, I mean, and, you know,

730
00:31:36,020 --> 00:31:37,940
it's always surprising when someone does it.

731
00:31:38,420 --> 00:31:42,140
But from a regulatory standpoint, you've kind of

732
00:31:42,140 --> 00:31:45,080
covered yourself if you reach out and do

733
00:31:45,080 --> 00:31:45,260
it.

734
00:31:45,320 --> 00:31:47,680
And you, again, you should document that this

735
00:31:47,680 --> 00:31:50,160
was sent out, either retain the email or

736
00:31:50,160 --> 00:31:53,120
however, you know, you would document one of

737
00:31:53,120 --> 00:31:53,620
those things.

738
00:31:53,980 --> 00:31:57,120
But also what you want is in your

739
00:31:57,120 --> 00:32:00,100
vendor agreement, whether it's a contract or a

740
00:32:00,100 --> 00:32:02,500
purchase order, whatever it is, that there is

741
00:32:02,500 --> 00:32:05,660
some sort of confidentiality provision in there that

742
00:32:05,660 --> 00:32:06,800
covers you as well.

743
00:32:06,800 --> 00:32:10,640
The regulators are not unreasonable in that they

744
00:32:10,640 --> 00:32:12,980
understand, you know, if you're dealing with a

745
00:32:12,980 --> 00:32:16,040
Schwab or a Fidelity or, you know, places

746
00:32:16,040 --> 00:32:18,460
like that, you know, you can only do

747
00:32:18,460 --> 00:32:19,140
so much.

748
00:32:19,240 --> 00:32:22,980
You don't really have leverage to force them

749
00:32:22,980 --> 00:32:25,020
to do something and, you know, or you're

750
00:32:25,020 --> 00:32:26,340
going to walk away because what do they

751
00:32:26,340 --> 00:32:26,540
care?

752
00:32:26,580 --> 00:32:27,400
You're going to walk away.

753
00:32:27,940 --> 00:32:29,780
So in the event of a data breach

754
00:32:29,780 --> 00:32:31,560
for somebody like that, how much of that

755
00:32:31,560 --> 00:32:33,200
falls back on us for responsibility?

756
00:32:33,200 --> 00:32:36,860
I think your responsibility is to make inquiries

757
00:32:36,860 --> 00:32:40,340
to see what was breached, if it did

758
00:32:40,340 --> 00:32:45,080
cover your client information, how they remedied it

759
00:32:45,080 --> 00:32:49,560
and, you know, what they're offering your clients

760
00:32:49,560 --> 00:32:52,280
because your clients are their clients too.

761
00:32:52,480 --> 00:32:54,480
So they have a direct relationship with them.

762
00:32:54,580 --> 00:32:56,140
So it is their responsibility.

763
00:32:56,640 --> 00:32:59,580
I think a wise thing is for you

764
00:32:59,580 --> 00:33:02,840
to act as a facilitator, that maybe the

765
00:33:02,840 --> 00:33:04,760
client is not going to understand what's going

766
00:33:04,760 --> 00:33:07,720
on or the remedies the client may have

767
00:33:07,720 --> 00:33:10,120
or the protections the clients may have.

768
00:33:10,720 --> 00:33:13,480
I wouldn't want you to step in and

769
00:33:13,480 --> 00:33:17,120
kind of say, oh, you know, this is

770
00:33:17,120 --> 00:33:18,060
on us as well.

771
00:33:18,120 --> 00:33:19,140
So we're going to help you.

772
00:33:19,160 --> 00:33:20,500
I wouldn't want you to take that liability

773
00:33:20,500 --> 00:33:22,900
because it really isn't nor should it be

774
00:33:22,900 --> 00:33:23,640
your liability.

775
00:33:26,720 --> 00:33:30,120
What are regulators thinking about and doing about

776
00:33:30,120 --> 00:33:31,500
artificial intelligence?

777
00:33:31,500 --> 00:33:36,320
Well, that's one of the areas, you know,

778
00:33:36,360 --> 00:33:40,520
a hot topic area, artificial intelligence, something called

779
00:33:40,520 --> 00:33:42,180
predictive analytics.

780
00:33:43,700 --> 00:33:46,920
There was a rule proposed by the SEC,

781
00:33:47,600 --> 00:33:50,480
I think in 2023 that dealt with that,

782
00:33:50,820 --> 00:33:52,820
but it has not been enacted yet.

783
00:33:53,700 --> 00:33:58,720
And their concern is that can the advisor

784
00:33:58,720 --> 00:34:03,660
detect and if it's there, eliminate any bias

785
00:34:04,300 --> 00:34:07,980
that could create skewed predictions that would favor

786
00:34:07,980 --> 00:34:08,940
their firm.

787
00:34:10,719 --> 00:34:12,480
That's their major concern.

788
00:34:13,199 --> 00:34:16,040
So I don't know why the rule has

789
00:34:16,040 --> 00:34:18,040
not been enacted, but that's not unusual.

790
00:34:18,340 --> 00:34:19,699
I mean, there's rules on the book that

791
00:34:19,699 --> 00:34:23,360
go back a dozen years that you would

792
00:34:23,360 --> 00:34:27,679
think would have been enacted like anti-money

793
00:34:27,679 --> 00:34:28,380
laundering.

794
00:34:29,480 --> 00:34:31,880
But so that's still pending.

795
00:34:32,699 --> 00:34:37,260
And the last exams that I've been through,

796
00:34:37,340 --> 00:34:38,420
it's not been an issue.

797
00:34:39,040 --> 00:34:42,639
Maybe because the advisor is not using AI

798
00:34:42,639 --> 00:34:45,679
in their business, but it hasn't come up

799
00:34:45,679 --> 00:34:46,639
as an issue.

800
00:34:46,880 --> 00:34:49,380
And I've noticed that quite often that the

801
00:34:49,380 --> 00:34:54,400
SEC will issue these hot topics or exam

802
00:34:54,400 --> 00:34:54,980
priorities.

803
00:34:54,980 --> 00:34:57,100
And then when you have an exam, like

804
00:34:57,100 --> 00:34:58,180
they're never broached.

805
00:34:59,180 --> 00:35:00,960
I mean, record keeping is because that's part

806
00:35:00,960 --> 00:35:01,640
of everything.

807
00:35:02,260 --> 00:35:05,920
But some of these are not broached as

808
00:35:05,920 --> 00:35:06,920
part of the exam.

809
00:35:08,680 --> 00:35:10,680
The thing I tried not to do is,

810
00:35:11,120 --> 00:35:14,040
when I first got started and there was

811
00:35:14,040 --> 00:35:16,020
a proposed rule, whether at the state or

812
00:35:16,020 --> 00:35:18,800
the SEC level, and I rushed out and

813
00:35:18,800 --> 00:35:21,820
changed everyone's compliance manual and got it all

814
00:35:21,820 --> 00:35:22,300
set.

815
00:35:22,440 --> 00:35:23,820
And I was going to show them that

816
00:35:23,820 --> 00:35:25,100
I was so ahead of the curve.

817
00:35:25,940 --> 00:35:27,880
And the rule was never enacted.

818
00:35:27,880 --> 00:35:30,100
I had to go back and claw everything

819
00:35:30,100 --> 00:35:31,680
back and re-edit everything.

820
00:35:32,420 --> 00:35:35,280
So they do give you plenty of time

821
00:35:35,280 --> 00:35:39,760
usually to make changes to your manual and

822
00:35:39,760 --> 00:35:43,040
your practices after they enact the rule itself.

823
00:35:43,160 --> 00:35:44,680
Sometimes it's 60 days.

824
00:35:45,580 --> 00:35:47,720
They just did one with anti-money laundering

825
00:35:47,720 --> 00:35:49,900
where it's 12 months for one group of

826
00:35:49,900 --> 00:35:52,220
advisors and 14 months for another group of

827
00:35:52,220 --> 00:35:52,680
advisors.

828
00:35:53,920 --> 00:35:58,140
And then once it's enacted and even past

829
00:35:58,140 --> 00:36:00,820
that time, it's sort of regulation-like.

830
00:36:01,120 --> 00:36:03,520
Like after they pass the compliance manual rule,

831
00:36:03,960 --> 00:36:06,800
it was years before they really started hammering

832
00:36:06,800 --> 00:36:11,460
clients, advisors on having off-the-shelf manuals.

833
00:36:12,300 --> 00:36:13,340
They let you get away.

834
00:36:13,620 --> 00:36:15,580
There's some leeway right at the beginning.

835
00:36:18,530 --> 00:36:21,790
What's your view on texting with advisors and

836
00:36:21,790 --> 00:36:22,230
clients?

837
00:36:23,070 --> 00:36:27,510
That's a big one because advisors are concerned

838
00:36:27,510 --> 00:36:28,230
about it.

839
00:36:28,850 --> 00:36:33,510
First of all, these off-channel communications, surveillance

840
00:36:33,510 --> 00:36:35,510
of electronic communications.

841
00:36:36,730 --> 00:36:43,610
So advisors are slowly beginning to allow their

842
00:36:43,610 --> 00:36:47,970
employees, mostly investment advisor reps, to use texts

843
00:36:47,970 --> 00:36:49,490
and texting.

844
00:36:50,010 --> 00:36:51,950
But if they're doing that, they have to

845
00:36:51,950 --> 00:36:54,930
come up with some sort of solution like

846
00:36:54,930 --> 00:36:58,610
they did with email years ago where those

847
00:36:58,610 --> 00:37:00,070
texts are retained.

848
00:37:00,850 --> 00:37:04,470
And if that's what you're doing, that's fine

849
00:37:04,470 --> 00:37:06,430
because it is just as an email and

850
00:37:06,430 --> 00:37:11,370
you'll need to reproduce those if requested during

851
00:37:11,370 --> 00:37:11,990
an exam.

852
00:37:12,830 --> 00:37:16,030
The problem is that if they're not allowing

853
00:37:16,030 --> 00:37:19,850
that and advisors are still using it or

854
00:37:19,850 --> 00:37:23,830
clients are texting the advisor, you really can't

855
00:37:23,830 --> 00:37:24,690
control that.

856
00:37:24,690 --> 00:37:27,470
And then it becomes kind of an unwieldy

857
00:37:27,470 --> 00:37:28,150
sort of thing.

858
00:37:28,830 --> 00:37:30,970
Take a screenshot of the text, paste it

859
00:37:30,970 --> 00:37:34,210
into an email, get back to the client

860
00:37:34,210 --> 00:37:37,950
and say, let's communicate through email.

861
00:37:38,350 --> 00:37:40,770
And no one wants to, first of all,

862
00:37:40,930 --> 00:37:43,310
put a roadblock in any communication with a

863
00:37:43,310 --> 00:37:43,730
client.

864
00:37:45,250 --> 00:37:47,870
As a client, I would find that kind

865
00:37:47,870 --> 00:37:48,470
of annoying.

866
00:37:48,850 --> 00:37:52,510
So I think more and more, advisors are

867
00:37:52,510 --> 00:37:55,650
gonna be finding those solutions which are, I

868
00:37:55,650 --> 00:37:58,350
think, probably kind of pricey now as were

869
00:37:58,350 --> 00:38:03,430
email solutions back when email was first required

870
00:38:03,430 --> 00:38:04,270
to be retained.

871
00:38:04,790 --> 00:38:08,690
Are there any texting, archiving companies that you

872
00:38:08,690 --> 00:38:09,750
like that you would recommend?

873
00:38:11,050 --> 00:38:13,370
Yeah, not that I can...

874
00:38:13,370 --> 00:38:16,630
Yeah, there's none I can really think of

875
00:38:16,630 --> 00:38:17,290
offhand.

876
00:38:17,430 --> 00:38:19,090
I know clients have told me some and

877
00:38:19,090 --> 00:38:21,650
I can certainly get back to you on

878
00:38:21,650 --> 00:38:23,170
whether they like them or not.

879
00:38:23,430 --> 00:38:23,690
Right.

880
00:38:23,690 --> 00:38:26,850
I don't know how many there are where

881
00:38:26,850 --> 00:38:30,550
there's a lot of choices, but I don't

882
00:38:30,550 --> 00:38:33,390
get that granular with clients where I help

883
00:38:33,390 --> 00:38:34,970
them select those sort of things.

884
00:38:35,250 --> 00:38:38,050
And a lot of times, it's the same

885
00:38:38,050 --> 00:38:39,390
company that's doing their email.

886
00:38:39,690 --> 00:38:41,210
They've just added that service.

887
00:38:42,770 --> 00:38:45,610
That was one of the items that was

888
00:38:45,610 --> 00:38:50,010
in my deficiency letter was texting.

889
00:38:50,700 --> 00:38:54,720
And what I had hoped was gonna be

890
00:38:55,930 --> 00:39:01,030
enough to satisfy the examiners was that I

891
00:39:01,030 --> 00:39:04,390
told them that I would occasionally receive text

892
00:39:04,390 --> 00:39:08,010
messages from clients, that what I would do

893
00:39:08,010 --> 00:39:12,170
is then go pivot to email, send them

894
00:39:12,170 --> 00:39:15,350
an email message saying that I received their

895
00:39:15,350 --> 00:39:19,390
text, kind of include in that email what

896
00:39:19,390 --> 00:39:23,630
they were asking or communicating about in the

897
00:39:23,630 --> 00:39:26,170
text and tell them that we were going

898
00:39:26,170 --> 00:39:30,930
to pick up that communication with this new

899
00:39:30,930 --> 00:39:33,850
email string and hope that that would be

900
00:39:33,850 --> 00:39:34,810
enough to cover it.

901
00:39:34,850 --> 00:39:37,170
But as you said, that was not what

902
00:39:37,170 --> 00:39:40,890
they advised was to take a screenshot, to

903
00:39:40,890 --> 00:39:44,570
send that and store that somewhere in my

904
00:39:44,570 --> 00:39:47,610
own records that that was where it started

905
00:39:47,610 --> 00:39:48,050
from.

906
00:39:48,370 --> 00:39:52,630
And not consider what my method was to

907
00:39:52,630 --> 00:39:53,890
be satisfactory.

908
00:39:54,490 --> 00:39:58,050
So what I primarily did was tell my

909
00:39:58,050 --> 00:40:01,950
clients not to text, to go to the

910
00:40:01,950 --> 00:40:04,190
email and start from there with me.

911
00:40:04,550 --> 00:40:05,310
But they don't listen.

912
00:40:06,270 --> 00:40:07,030
Not always.

913
00:40:07,710 --> 00:40:09,170
Let's say not all of them.

914
00:40:11,620 --> 00:40:13,600
Yeah, Massachusetts, I have to say, is pretty

915
00:40:13,600 --> 00:40:18,940
aggressive with their enforcement of sort of cutting

916
00:40:18,940 --> 00:40:21,740
edge things because other states are not necessarily

917
00:40:21,740 --> 00:40:23,440
looking at that right now.

918
00:40:25,160 --> 00:40:27,320
How many, what would you say, Scott?

919
00:40:27,460 --> 00:40:29,460
I mean, obviously small and midsize firms, right?

920
00:40:29,500 --> 00:40:30,900
A lot of these are established firms.

921
00:40:32,540 --> 00:40:35,360
I'm guessing because you did this for us

922
00:40:35,360 --> 00:40:39,100
is you're helping firms start to, you know,

923
00:40:39,120 --> 00:40:40,280
from the ground up too.

924
00:40:41,060 --> 00:40:42,120
Do you do a lot of that?

925
00:40:42,180 --> 00:40:43,440
And how cumbersome is that?

926
00:40:46,400 --> 00:40:47,160
What's coming?

927
00:40:47,280 --> 00:40:48,120
Yeah, I do.

928
00:40:48,120 --> 00:40:52,380
I mean, and then stay with them through

929
00:40:52,380 --> 00:40:55,300
their life cycle until they transition to SEC

930
00:40:55,300 --> 00:40:58,960
registration very often, or they stay state registered.

931
00:40:59,480 --> 00:41:01,380
And they're very happy doing that.

932
00:41:01,440 --> 00:41:02,900
And of course, now it's a little different

933
00:41:03,490 --> 00:41:06,660
over the last few years when the cutoff

934
00:41:06,660 --> 00:41:09,060
was 25 million as opposed to 100 million

935
00:41:09,060 --> 00:41:09,600
now.

936
00:41:10,140 --> 00:41:13,740
Back then you had more advisory firms transitioning.

937
00:41:14,800 --> 00:41:18,780
What's counterintuitive is that it is far more

938
00:41:18,780 --> 00:41:21,040
difficult to register with the state than it

939
00:41:21,040 --> 00:41:21,900
is with the SEC.

940
00:41:22,740 --> 00:41:24,820
The SEC requires, they used to require two

941
00:41:24,820 --> 00:41:29,060
documents, the ADV-1, the ADV-2A, and

942
00:41:29,060 --> 00:41:31,280
now the form CRS, which is like a

943
00:41:31,280 --> 00:41:34,160
smaller version of the ADV-2A.

944
00:41:34,620 --> 00:41:36,060
The states don't require that.

945
00:41:36,480 --> 00:41:37,460
You'd file it.

946
00:41:37,900 --> 00:41:40,420
And rarely did you ever hear back with

947
00:41:40,420 --> 00:41:42,040
a comment or change this.

948
00:41:42,040 --> 00:41:44,840
In fact, in the last 20 years, I've

949
00:41:44,840 --> 00:41:46,400
only had that happen once.

950
00:41:46,780 --> 00:41:50,760
I've had firms become SEC registered in as

951
00:41:50,760 --> 00:41:53,340
little as a week, rarely more than 30

952
00:41:53,340 --> 00:41:55,060
days, which is important.

953
00:41:55,160 --> 00:41:57,340
Just let me say that if you're thinking

954
00:41:57,340 --> 00:42:01,000
of transitioning to SEC registration, that in the

955
00:42:01,000 --> 00:42:03,180
months leading up to it, you need to

956
00:42:03,180 --> 00:42:05,680
get your compliance program in place then.

957
00:42:05,980 --> 00:42:09,580
You can't file and then think you're gonna

958
00:42:09,580 --> 00:42:13,280
use that interim period to put your compliance

959
00:42:13,280 --> 00:42:14,460
program in place.

960
00:42:14,780 --> 00:42:16,420
And a good compliance program is gonna take

961
00:42:16,420 --> 00:42:18,840
you months to put into place because you

962
00:42:18,840 --> 00:42:21,220
may get registered in a week and then

963
00:42:21,220 --> 00:42:22,960
you're without a program.

964
00:42:23,320 --> 00:42:25,140
And the SEC has every right to go

965
00:42:25,140 --> 00:42:27,300
back to day one to look at what

966
00:42:27,300 --> 00:42:27,920
you're doing.

967
00:42:28,380 --> 00:42:31,280
Registering with the state, often the states require

968
00:42:31,280 --> 00:42:32,460
additional documents.

969
00:42:32,620 --> 00:42:34,760
They wanna see your advisory agreements.

970
00:42:35,020 --> 00:42:36,680
Sometimes you have to do an attestation that

971
00:42:36,680 --> 00:42:40,680
you've not been providing advisory services as an

972
00:42:40,680 --> 00:42:41,840
unregistered advisor.

973
00:42:42,260 --> 00:42:44,620
There could be financial statements that you have

974
00:42:44,620 --> 00:42:45,280
to provide.

975
00:42:45,420 --> 00:42:48,160
So there's a whole litany of additional documents.

976
00:42:48,840 --> 00:42:50,600
And then the state, much to their credit,

977
00:42:51,140 --> 00:42:53,800
actually reads the documents and they come back

978
00:42:53,800 --> 00:42:54,680
with comments.

979
00:42:54,860 --> 00:42:56,400
And then you have to respond to those

980
00:42:56,400 --> 00:42:58,000
comments and then they will come back to

981
00:42:58,000 --> 00:42:59,160
them with more comments.

982
00:42:59,400 --> 00:43:02,820
So a state registration is gonna look more

983
00:43:02,820 --> 00:43:05,340
like three months to six months.

984
00:43:05,520 --> 00:43:07,980
I mean, it happens quicker if everything's perfect

985
00:43:07,980 --> 00:43:10,700
and how they want it.

986
00:43:10,940 --> 00:43:14,140
But more often than not, it drags on.

987
00:43:14,540 --> 00:43:16,420
And also it's a timing thing.

988
00:43:16,680 --> 00:43:20,760
If they get four other applications that day

989
00:43:20,760 --> 00:43:22,500
and yours is the fifth, yours is gonna

990
00:43:22,500 --> 00:43:24,500
go on the bottom of the pile and

991
00:43:24,500 --> 00:43:26,080
they have limited resources.

992
00:43:26,280 --> 00:43:28,480
Some states have one person looking at these

993
00:43:28,480 --> 00:43:28,860
things.

994
00:43:29,120 --> 00:43:32,660
So it really can drag on as opposed

995
00:43:32,660 --> 00:43:33,540
to SEC.

996
00:43:33,980 --> 00:43:35,680
Three to six months, Kevin's gonna say, hold

997
00:43:35,680 --> 00:43:36,120
my beer.

998
00:43:36,580 --> 00:43:39,140
Kevin and I both sought to register our

999
00:43:39,140 --> 00:43:41,460
firms in Massachusetts in 2020, right around the

1000
00:43:41,460 --> 00:43:41,800
same time.

1001
00:43:42,100 --> 00:43:43,220
I think you're right.

1002
00:43:43,260 --> 00:43:46,060
I think it took us three months, three

1003
00:43:46,060 --> 00:43:49,000
or four back and forth with clarify this

1004
00:43:49,000 --> 00:43:49,720
type of a thing.

1005
00:43:49,960 --> 00:43:51,540
We're fee only, right?

1006
00:43:51,580 --> 00:43:52,600
We're not charging commissions.

1007
00:43:52,720 --> 00:43:53,620
We're not selling products.

1008
00:43:53,760 --> 00:43:56,940
So I think that's the simplest process, right?

1009
00:43:57,020 --> 00:43:58,720
And that still took three months.

1010
00:43:59,240 --> 00:44:00,680
Kevin can tell you how long it took.

1011
00:44:00,760 --> 00:44:03,380
And he has a slightly different fee structure

1012
00:44:03,380 --> 00:44:06,200
too, which I'm guessing plays into how long

1013
00:44:06,200 --> 00:44:06,820
this takes.

1014
00:44:07,380 --> 00:44:10,620
That was a big issue with mine was

1015
00:44:10,620 --> 00:44:15,260
I had started off with a kind of

1016
00:44:15,260 --> 00:44:16,020
two options.

1017
00:44:16,200 --> 00:44:19,240
I had, if clients wanted investment management only,

1018
00:44:19,440 --> 00:44:23,220
I had a typical AUM fee structure.

1019
00:44:23,400 --> 00:44:24,440
That was simple.

1020
00:44:25,000 --> 00:44:28,860
On the financial planning side of things, I

1021
00:44:28,860 --> 00:44:32,160
was offering a fee structure that was based

1022
00:44:32,160 --> 00:44:35,800
off of adjusted gross income and a percentage

1023
00:44:35,800 --> 00:44:36,920
of net worth.

1024
00:44:37,680 --> 00:44:40,320
And Massachusetts hated that.

1025
00:44:40,900 --> 00:44:43,340
They could not, we just weren't getting anywhere.

1026
00:44:43,580 --> 00:44:46,800
And I was working with compliance group that

1027
00:44:46,800 --> 00:44:48,880
I should have been working with you, Scott.

1028
00:44:48,940 --> 00:44:49,940
I think you would have helped it.

1029
00:44:50,220 --> 00:44:54,480
They were providing little help with, I thought

1030
00:44:54,480 --> 00:44:57,520
that they would be helping to, I don't

1031
00:44:57,520 --> 00:44:59,760
know if negotiate the right term or not,

1032
00:44:59,760 --> 00:45:01,920
but to help me kind of get across

1033
00:45:01,920 --> 00:45:03,540
the finish line with Massachusetts.

1034
00:45:03,540 --> 00:45:07,440
And they were actually really just relaying information

1035
00:45:07,440 --> 00:45:09,740
from Massachusetts back to me.

1036
00:45:09,820 --> 00:45:11,940
And then my response is back to Massachusetts

1037
00:45:11,940 --> 00:45:14,800
and we weren't getting anywhere, but they really

1038
00:45:14,800 --> 00:45:18,520
did not like anything outside of AUM.

1039
00:45:18,680 --> 00:45:21,000
It felt to me to a point where

1040
00:45:21,000 --> 00:45:23,920
I'm still, I still offer that fee structure,

1041
00:45:24,220 --> 00:45:29,080
but I am thinking about and likely to

1042
00:45:29,080 --> 00:45:33,300
be changing just to a straight AUM or

1043
00:45:33,300 --> 00:45:35,620
fixed fee and get rid of the fee

1044
00:45:35,620 --> 00:45:38,380
structure based on income and net worth, because

1045
00:45:38,380 --> 00:45:40,400
I just don't want the headache again going

1046
00:45:40,400 --> 00:45:40,940
forward.

1047
00:45:41,940 --> 00:45:42,980
Yeah, because you're going to relive it every

1048
00:45:42,980 --> 00:45:44,640
time they come in, because it's probably going

1049
00:45:44,640 --> 00:45:45,600
to be different people.

1050
00:45:46,140 --> 00:45:47,540
They're not going to understand it.

1051
00:45:48,600 --> 00:45:53,540
And it is, regulators don't like anything that

1052
00:45:53,540 --> 00:45:55,000
doesn't fit in the box.

1053
00:45:55,000 --> 00:45:58,580
And that certainly is a fee structure that

1054
00:45:58,580 --> 00:45:59,340
is unique.

1055
00:45:59,480 --> 00:46:02,280
But are more, I know larger companies that

1056
00:46:02,280 --> 00:46:03,860
do that now, they base their fee on

1057
00:46:03,860 --> 00:46:06,200
net worth or whatever it is and not

1058
00:46:06,200 --> 00:46:08,100
necessarily assets that you have.

1059
00:46:09,140 --> 00:46:11,560
So they must, I mean, they must have

1060
00:46:11,560 --> 00:46:12,860
seen it now a bunch of times and

1061
00:46:12,860 --> 00:46:14,460
are becoming somewhat okay with it.

1062
00:46:15,140 --> 00:46:18,620
Well, don't forget when we're talking state, you're

1063
00:46:18,620 --> 00:46:20,100
topping out at a hundred million.

1064
00:46:20,980 --> 00:46:23,600
They may not be the companies doing that.

1065
00:46:24,200 --> 00:46:27,460
The SEC may have the sophistication to understand

1066
00:46:27,460 --> 00:46:30,840
it and just something they've seen more often.

1067
00:46:31,280 --> 00:46:32,640
I don't think, I don't have any clients

1068
00:46:32,640 --> 00:46:34,740
that do it based on that.

1069
00:46:35,020 --> 00:46:36,800
But I mean, that doesn't mean it's not

1070
00:46:36,800 --> 00:46:37,360
going on.

1071
00:46:38,220 --> 00:46:40,760
That was the piece of it that caught

1072
00:46:40,760 --> 00:46:44,280
me off guard is I knew other advisors

1073
00:46:44,280 --> 00:46:48,000
that had a similar structure, even advisors that

1074
00:46:48,000 --> 00:46:52,240
had gotten through registration in Massachusetts without the

1075
00:46:52,240 --> 00:46:52,500
headache.

1076
00:46:52,500 --> 00:46:54,320
And I don't know if I had someone

1077
00:46:54,320 --> 00:46:56,980
that was new to the Mass Securities Division

1078
00:46:56,980 --> 00:46:59,620
that maybe had not seen it or maybe

1079
00:46:59,620 --> 00:47:03,600
was trying to kind of prove themselves, but

1080
00:47:03,600 --> 00:47:04,260
it was tough.

1081
00:47:04,460 --> 00:47:07,480
A lot of the holdup came to their

1082
00:47:07,480 --> 00:47:12,820
questioning of, how do you feel like that

1083
00:47:12,820 --> 00:47:16,700
quantifies the value that you're providing?

1084
00:47:17,600 --> 00:47:21,020
And I didn't have a great answer to

1085
00:47:21,020 --> 00:47:23,900
it, but I also said, if I'm doing

1086
00:47:23,900 --> 00:47:27,400
AUM, how does that translate to the value

1087
00:47:27,400 --> 00:47:28,580
I'm providing?

1088
00:47:29,240 --> 00:47:32,500
I always said, if someone has $2 million

1089
00:47:32,500 --> 00:47:35,680
under management and $1 million and I'm providing

1090
00:47:35,680 --> 00:47:39,320
planning for that, am I necessarily providing twice

1091
00:47:39,320 --> 00:47:42,800
as much work to the $2 million client?

1092
00:47:42,980 --> 00:47:45,200
And not necessarily, it can go up and

1093
00:47:45,200 --> 00:47:47,440
down, but they wanted almost like a straight

1094
00:47:47,440 --> 00:47:50,960
line to every dollar of net worth had

1095
00:47:50,960 --> 00:47:53,920
to translate to a quarter hour of financial

1096
00:47:53,920 --> 00:47:56,720
planning work somehow, or they weren't going to

1097
00:47:56,720 --> 00:47:57,360
accept it.

1098
00:47:58,060 --> 00:48:00,920
So eventually I got up and running, which

1099
00:48:00,920 --> 00:48:04,720
made me happy, but it wasn't as easy

1100
00:48:04,720 --> 00:48:06,400
as Brad's journey.

1101
00:48:06,940 --> 00:48:08,140
How long did it take you?

1102
00:48:08,260 --> 00:48:08,840
Did it take a year?

1103
00:48:09,620 --> 00:48:11,480
It was, yeah, it was over nine months.

1104
00:48:11,620 --> 00:48:14,860
It was getting to the point where my

1105
00:48:14,860 --> 00:48:17,860
wife was getting uncomfortable with my lack of

1106
00:48:17,860 --> 00:48:18,800
income coming in.

1107
00:48:19,180 --> 00:48:21,240
So yeah, longer than I wanted.

1108
00:48:21,560 --> 00:48:23,220
Yeah, that's interesting, because to me, that's a

1109
00:48:23,220 --> 00:48:24,180
point worth arguing.

1110
00:48:25,020 --> 00:48:27,400
And you're allowed, you run a business, you're

1111
00:48:27,400 --> 00:48:30,940
allowed to do as you see fit, again,

1112
00:48:31,100 --> 00:48:32,360
as long as you disclose it.

1113
00:48:32,400 --> 00:48:35,040
I don't understand why it's in their purview

1114
00:48:35,700 --> 00:48:39,100
to make any judgment on how you charge

1115
00:48:39,100 --> 00:48:40,040
advisory fees.

1116
00:48:40,140 --> 00:48:41,360
So I wish it was me.

1117
00:48:41,440 --> 00:48:43,560
I would welcome an argument like that.

1118
00:48:43,560 --> 00:48:47,780
And the thing to understand about regulators, and

1119
00:48:47,780 --> 00:48:50,140
they're probably hopefully not listening, both at the

1120
00:48:50,140 --> 00:48:52,720
SEC and the state level, is they're not

1121
00:48:52,720 --> 00:48:53,300
always right.

1122
00:48:53,640 --> 00:48:55,040
And they don't always know the law.

1123
00:48:55,240 --> 00:48:56,760
Sometimes it's quite surprising.

1124
00:48:57,640 --> 00:49:03,920
I've had very heated arguments, spirited arguments with

1125
00:49:03,920 --> 00:49:08,580
SEC advisors over very simple points of law,

1126
00:49:08,760 --> 00:49:10,800
like not even questionable things.

1127
00:49:10,800 --> 00:49:13,400
And they believe something totally different.

1128
00:49:14,000 --> 00:49:16,720
And the problem is now you're caught because

1129
00:49:16,720 --> 00:49:19,720
they're not precedent.

1130
00:49:19,960 --> 00:49:22,160
You can't base what you do on what

1131
00:49:22,160 --> 00:49:25,060
something an examiner says, yet you're caught in

1132
00:49:25,060 --> 00:49:25,720
that exam.

1133
00:49:26,140 --> 00:49:27,540
So it's almost like you have to make

1134
00:49:27,540 --> 00:49:28,060
changes.

1135
00:49:28,180 --> 00:49:30,820
And then once the exam's over, go back

1136
00:49:30,820 --> 00:49:31,760
to what you were doing.

1137
00:49:31,960 --> 00:49:33,700
It's quite tricky in that way.

1138
00:49:34,180 --> 00:49:36,160
I know you do some compliance seminars for

1139
00:49:36,160 --> 00:49:38,100
Raymond James, for Schwab, for things like that.

1140
00:49:38,200 --> 00:49:39,420
What topics?

1141
00:49:39,420 --> 00:49:41,420
Things we talked about or things outside of

1142
00:49:41,420 --> 00:49:41,580
this?

1143
00:49:41,960 --> 00:49:43,360
Yeah, it's been a while now.

1144
00:49:44,840 --> 00:49:47,600
When new custody rule came into place and

1145
00:49:47,600 --> 00:49:51,200
compliance, and just very straightforward, a lot of

1146
00:49:51,200 --> 00:49:52,900
the things that we spoke about, but much

1147
00:49:52,900 --> 00:49:54,200
more narrow.

1148
00:49:56,140 --> 00:49:59,920
With Schwab, you get those, I don't know

1149
00:49:59,920 --> 00:50:01,800
if it comes out monthly, but the compliance

1150
00:50:01,800 --> 00:50:03,340
newsletter or something.

1151
00:50:03,840 --> 00:50:05,600
So it would be like on that, I

1152
00:50:05,600 --> 00:50:08,140
would write the newsletter and then the seminar

1153
00:50:08,140 --> 00:50:10,520
or the webinar would be on that topic.

1154
00:50:11,100 --> 00:50:12,380
Is there anything Kevin and I haven't asked

1155
00:50:12,380 --> 00:50:13,980
you that we should have, that we should

1156
00:50:13,980 --> 00:50:14,240
know?

1157
00:50:14,960 --> 00:50:18,520
Yeah, I think maybe some takeaways for our

1158
00:50:18,520 --> 00:50:24,400
advisors is the buzzword now in compliance is

1159
00:50:24,400 --> 00:50:26,560
proactive, like be proactive.

1160
00:50:27,080 --> 00:50:32,100
Find the problems before the regulators find them.

1161
00:50:32,120 --> 00:50:33,700
And there's different ways of doing that.

1162
00:50:34,220 --> 00:50:35,820
You can do your compliance testing.

1163
00:50:36,140 --> 00:50:38,460
I mean, that is the gold standard for

1164
00:50:38,460 --> 00:50:41,360
finding out if your policies and procedures are

1165
00:50:41,360 --> 00:50:43,140
working as you think they are.

1166
00:50:43,580 --> 00:50:45,760
You can do a mock audit or a

1167
00:50:45,760 --> 00:50:47,380
formal compliance review.

1168
00:50:48,280 --> 00:50:52,120
One thing I suggest is create a requirements

1169
00:50:52,120 --> 00:50:52,520
chart.

1170
00:50:53,160 --> 00:50:55,780
I do this for my SEC clients because

1171
00:50:55,780 --> 00:50:58,180
this is what the SEC does.

1172
00:50:58,760 --> 00:51:01,500
They'll go through your compliance manual and look

1173
00:51:01,500 --> 00:51:04,020
for every requirement that your manual says you're

1174
00:51:04,020 --> 00:51:04,420
doing.

1175
00:51:05,160 --> 00:51:07,620
And then they'll challenge you on some of

1176
00:51:07,620 --> 00:51:09,340
them, are you doing this?

1177
00:51:09,660 --> 00:51:12,000
Even if it's not a rule or a

1178
00:51:12,000 --> 00:51:14,780
best practice, if it's in your manual, you

1179
00:51:14,780 --> 00:51:15,980
better be doing it.

1180
00:51:16,360 --> 00:51:19,020
So if you create a requirements chart and

1181
00:51:19,020 --> 00:51:21,080
once a year you go through it and

1182
00:51:21,080 --> 00:51:23,080
say, yeah, we're doing this, we're not doing

1183
00:51:23,080 --> 00:51:23,420
this.

1184
00:51:24,100 --> 00:51:26,700
With the not doing this ones, why aren't

1185
00:51:26,700 --> 00:51:27,400
you doing it?

1186
00:51:28,000 --> 00:51:30,320
Is it something that you don't need in

1187
00:51:30,320 --> 00:51:30,580
there?

1188
00:51:30,700 --> 00:51:32,300
If it is, get rid of it.

1189
00:51:32,740 --> 00:51:35,320
If it's something that needs to be there,

1190
00:51:35,320 --> 00:51:37,200
that it's pretty much a hard and fast

1191
00:51:37,200 --> 00:51:40,120
rule, you better figure out a way to

1192
00:51:40,120 --> 00:51:42,080
do it or to do it better.

1193
00:51:42,420 --> 00:51:44,540
And then two things I mentioned earlier, document

1194
00:51:44,540 --> 00:51:46,560
everything and disclose.

1195
00:51:47,060 --> 00:51:49,260
Can't go wrong by over disclosing.

1196
00:51:49,900 --> 00:51:50,060
Thank you.

1197
00:51:50,120 --> 00:51:53,880
And uscomplianceconsultants.com if somebody wants to get

1198
00:51:53,880 --> 00:51:54,500
in touch with you.

1199
00:51:55,140 --> 00:51:55,500
Yes.

1200
00:51:55,660 --> 00:51:56,760
You still have capacity.

1201
00:51:58,060 --> 00:51:59,780
Still have capacity, yes.

1202
00:52:00,040 --> 00:52:00,480
Fantastic.

1203
00:52:00,620 --> 00:52:02,220
Scott, thanks for joining us on the Wicked

1204
00:52:02,220 --> 00:52:02,960
Pista podcast.

1205
00:52:03,140 --> 00:52:05,340
Again, to find out more about Scott Gottlieb

1206
00:52:05,340 --> 00:52:09,640
and US Compliance Consultants, you can visit uscomplianceconsultants

1207
00:52:09,640 --> 00:52:12,240
.com and for more info on our Financial

1208
00:52:12,240 --> 00:52:16,280
Planning Association, you can go to fpanewengland.org.

1209
00:52:16,540 --> 00:52:18,320
If you'd like to learn more about the

1210
00:52:18,320 --> 00:52:22,460
Financial Planning Association or FPA New England, visit

1211
00:52:22,460 --> 00:52:27,280
our websites, financialplanningassociation.org for the National Association

1212
00:52:27,280 --> 00:52:30,320
or fpanewengland.org.

1213
00:52:30,340 --> 00:52:32,740
You can learn more about our organization and

1214
00:52:32,740 --> 00:52:34,300
all the upcoming chapter events.

1215
00:52:34,900 --> 00:52:35,660
We hope you'll join.

1216
00:52:36,260 --> 00:52:38,560
That's fpanewengland.org.

1217
00:52:38,900 --> 00:52:40,960
Until next time, have a wicked good day.