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

0:00 On today's episode of the Wicked Pissah Podcast, we will delve into the job of an outside compliance consultant, the difference between SEC and state compliance, and what the regulators are focusing on in 2025, including thoughts on artificial intelligence and texting with clients. It's time for a Wicked Pissah Podcast. Wicked Pissah Podcast. Wicked Pissah Podcast. It's time for a Wicked Pissah Podcast. Welcome to the Wicked Pissah Podcast, a production of the Financial Planning Association of New England, intended for financial planning advisors. I'm Brad Wright, past president of the Financial Planning Association of New England and co-founder of Launch Financial Planning.

0:43 My co-host today is Kevin Williams, another past president of our New England chapter and founder of Full Life Financial Planning. Our guest on this episode is Scott Gottlieb. Scott is president of U.S. Compliance Consultants, a full-service compliance consulting company that focuses exclusively on state and SEC registered investment advisors. Scott founded U.S. Compliance Consultants in 2004. U.S. Compliance Consultants has been a preferred service provider for both Schwab and Raymond James, and Scott has conducted multiple compliance seminars on a variety of topics for both firms. Prior to founding U.S. Compliance Consultants, Scott was a corporate and securities attorney at Kelly Dry and Warren, an international law firm based in New York City.

1:26 And he started out as a corporate attorney for Robinson and Cole, a regional law firm with offices in Boston, Hartford, and Stamford, Connecticut. For more info on Scott and his company, you can go to USComplianceConsultants.com. Scott, thank you for making time for us today. A pleasure to be here. And I guess full disclosure, Scott's company is the outside consultants for my firm, for Launch Financial Planning. I figured we're about almost 250 episodes into this podcast, and I don't think, to the best of my knowledge, that we've done anything focused on compliance. And I knew that Scott has stories and info and knowledge and would be a great guest for us today. So thanks. And let's start at the beginning.

2:09 Tell us about your journey. How did you get to where you are today? And what made you want to work with people like us who apparently can't even fill out ADV questionnaires correctly? I graduated law school and went right to a regional law firm. And from there, tried to climb the ladder and went to an international law firm. It was absolutely miserable. I mean, it is a hideous place to work, a big law firm. You're there all hours. You're not appreciated. And my best friend and doubles partner in tennis is an investment advisor in Glastonbury, Connecticut. At that time, he was state registered. And he said, look, there is no one out there serving the small or medium-sized investment advisory firm.

2:54 And it took me literally 24 hours to set up a new company, give notice, and start my new compliance consulting firm. I mean, I couldn't have gotten out of there quick enough. And I was really fortunate. I had the background. I was a corporate and securities attorney. And my offices were in Greenwich. And it was right when the SEC passed the first hedge fund registration rule. And I could literally walk down Greenwich Avenue and get clients. It was incredible. I thought I was clearly the best business person on the face of this earth. And then the SEC rescinded the rule.

3:36 All my clients were no longer clients. And I had to actually come up with a business plan and figure out what to do. But that's how I built the business, working with state registered advisors and smaller SEC registered advisors. What's the job of US compliance consultants? What do you do with these small and medium firms? It really is whatever they need, dependent on their needs. I mean, for SEC registered advisors, I've served as their outsource chief compliance officer. I wouldn't do that again. I ended up in court over that. Because as a chief compliance officer, you're responsible for what goes on at the firm.

4:19 And as a part-time CCO, you're really a no-time CCO. So I learned a lesson a very hard and expensive way. But a lot of SEC registered advisors will outsource their compliance to us, up to me or someone taking the CCO position. So we'll work with them to do their compliance testing. We do their compliance training, all their registration issues, whether it's the annual amendment or interim filings, and keeping up their compliance program. Drafting their initial compliance manual, doing the risk assessments, putting the compliance testing plan into place, and staying on top of that to make sure they're doing it, but also making changes as either the rules or the best practices change.

5:13 So it's really an involved and it's a close relationship. And for state registered advisors, beyond setting them up and helping them register or putting a compliance program into place, they don't really need as much help. Typically, they need help with their annual filings and interim filings. And what they like is someone on retainer to be able to ask questions to. It's very hard for advisors who don't have a dedicated compliance program to keep up with compliance. And that's because investment advisor compliance, if you looked at the rules, maybe 20, 25% is written down somewhere and the rest, whether it's 75, 80% is based on best practices.

6:01 And those are ever changing. It's whatever the regulators want those best practices to be at any one time. So it helps to have a compliance consultant that's going, sort of constantly going through audits with other firms, so they can stay up on what the regulators are looking for at any one time. How many of these firms do you think are actually hiring outside consultants versus having just someone inside that quote unquote will handle it? It's hard to say because the sweet spot for having a dedicated compliance person is right around maybe five, 600 million assets under management.

6:47 But smaller firms, I mean, I don't have to tell you that the owners of the firm, it's like, who's going to volunteer and someone takes a step backwards and leaves the other partner volunteering for the CCO position. So it is someone in house, but has a million other things to do. And really, okay, is concerned about compliance, but not concerned enough to put it in front of client concerns. And that's understandable. So having a consultant is really helpful to let you know what's important to do, what you can sort of glide over and what the regulators are going to be looking for when they come in.

7:38 Yeah, when I first got into this business, I don't know, you're in there for like two minutes and people are like, do you ever want your own firm? And my answer was always no. Well, why? Because I don't want to deal with compliance. I don't ever want to deal with compliance. And luckily, I found a partner who has a history of dealing with compliance and is good at it and was willing to take that on. Otherwise, I don't know that I ever would have done it. That's what I hear when potential clients call and talk about maybe leaving their current firm or breaking away from a firm and starting their own firm. That's the major issue with them is that, I mean, maybe besides bringing clients over, but how do I handle the compliance?

8:22 Because it has gotten such a bad rap and there's a great fear out there of, well, if I'm responsible for compliance, I'm going to get into trouble because I'm not going to be able to do it. So you deal with both the SEC and various states, I guess, not just one, probably a whole bunch of them. Do you prefer one over the other? Which path is more onerous on you? It's interesting because like I said, I'm doing more for the SEC registered firms. So I'm more sort of invested in that and that if the SEC comes in and there's problems, I mean, it's the owner that looks over to me and says, why are we having this problem?

9:08 So I get that feeling in the pit of my stomach when I get a notice from clients that we just heard from the SEC, we're going to have an audit. And it's not a great feeling because I really am part of the firm and most of my clients have been with me 10, 15, even some 20 years. So it's not just I'm invested professionally, I'm invested from a personal and emotional standpoint. The state is the way someone put it to me, a client put it to me, is like a state exam is like a colonoscopy. It's never as bad as you think it is. An SEC exam is like a colonoscopy, but without anesthesia.

9:51 And it's far worse than you can ever imagine. So that's kind of how it is. So a state exam is less onerous in a lot of ways. It's like a mile wide and an inch deep and an SEC exam is a mile wide and a mile deep. Speaking of colonoscopies. Yeah. So, but you know, it's changing. When I first started, there was a clear dichotomy between what states required and what the SEC required. States were much less onerous. And the state personnel, the people doing the exams were not all that professional.

10:35 In Massachusetts, I had an exam where the week before the guy was a taxi driver. And obviously nothing wrong with being the taxi driver, but it's not the level of professionalism that you would get with the SEC. And that's kind of how the exams would run. It was very surface. Did you have a signed client contract? Do you have an ADV in the client file? Very sort of books and records, very simple, straightforward things. But that's changed. And Massachusetts is really the leader in that. That a lot of states are either adopting the SEC rules that have been passed, expressly adopting them like Massachusetts.

11:22 So going back to 2009, they adopted the new SEC compliance rule. They adopted the new at the same year, the code of ethics rule. And more recently, the new advertising and marketing rules that were passed back in or enacted back in 2022. So a compliance manual and a compliance program for a state registered advisor in Massachusetts is not gonna look that much different than an SEC registered advisor. And other states like Connecticut may not have expressly adopted those rules. But when it comes to practice, they really have.

12:05 They're looking for things that previously they would only look for in an SEC examination. And some states are even outstripping the SEC like Massachusetts with their cybersecurity laws. And Massachusetts and California are two states that have more onerous cybersecurity rules and regulations than does the SEC. Yeah, well, I'll let Kevin speak to the state. Knock on wood, I haven't had the state come in yet. But Kevin did early in his new firm's life. And what were they focused on, Kevin? Was it cybersecurity? What was it? They really focused on everything.

12:47 And I would agree to a certain extent with Scott in terms of the requests were a mile wide. And having not been through an SEC examination, I don't know exactly how to compare how deep it went. But they did want a lot of information. And they did want it and expect it in a very short period of time. And they came in shortly after I had been registered, which so it surprised me how quickly they ended up coming in, figuring I was a new independent RIA. I was just building up my practice and feeling like there wasn't going to be a lot for them to look at.

13:32 But they were very thorough in terms of collecting information. And I was a bit surprised. At the time, I was working from home. This was during COVID. In fact, I ended up having the examination backed up a couple of weeks because someone in my household contracted COVID. So that gave me a little bit of extra time to luckily get prepared. But they wanted a lot of information. And they came in, they had a full team. There was three of them. And I remember sitting down at the kitchen table, which is where we were having our meeting and apologizing to them.

14:13 I was a little bit, I expected that it would be different being in someone's home. But they said that 60 to 70% of the examinations they were performing were small RIAs that were working from home, which just surprised me. So they came in, they looked at everything, very thorough, wanted everything. They started really with the ADV. That was the bulk of it. They went through the ADV and pretty much anything that was in there that said it was gonna be happening, they wanted detailed proof throughout the year and a half that I had been up and running that those things were happening.

14:57 And then there was obviously some basics, but that was really the bulk of it was they wanted to see that I had all of my programs in place for, as you said, code of ethics, privacy policy, cybersecurity, transition plans where I was just myself, should anything happen to me, how would that play out and what was the evidence? And also they did wanna make sure that everything in my house where I worked was as secure as you'd expect it to be in an office building.

15:39 So they were pretty detailed. And then the thing that was really interesting was it only took them about six hours with me. Three of it was sitting down and just having, and basically I'd call it an audit inquiry and discussion. And then they took everything and disappeared. I followed up 30 days later. They had no information for me. I followed up 90 days after that to see if they had any updates, feedback. Was there anything I needed to be concerned with? And they said they had no updates. And then I said, at this point, I'll just leave well alone if I don't hear anything.

16:20 I don't wanna remind them to look to find anything to ding me with. And I kind of forgot about it until this past fall when a letter showed up with a couple of things that they found, nothing that was anything major that they were writing me up for. And I recall them being things that we discussed about at the table that day. And I had two weeks to respond in writing as to how those things had been handled. And several of them had been changed multiple times in terms of how I was handling them because the audit or examination was so long ago.

17:03 But they covered the ADV pretty much in depth and wanted evidence to support that all those things were taking place as they should. Hey, Scott, when they come in, are they looking to catch you? Are they looking to find wrongdoing? Or is the goal just to come through and say, yeah, we checked them out and they're okay? No, I think they're looking to find something. I mean, it's kind of boring for them just to come in and find everything is okay. You know, they kind of, I don't know if they, you know, their performance is based on it. Certainly the SEC is looking for wrongdoing. I assume the state regulators are doing the same as well.

17:46 I mean, it's kind of fun for them to dig into something and find it. And it doesn't even have to be anything nefarious. It could be they just find that you're doing something wrong that you need to correct or improve. You know, not everything is, you know, fraud or, you know, illegal activity or, you know, a lot of the problems with advisors' compliance is lack of care. You know, so it's not always that they're trying to find these terrible things. They're just trying to find things. Something to validate their existence.

18:28 So I haven't been through a state audit, but I have been through an SEC audit that you were a part of at my previous firm. Three auditors similar to you, Kevin, came in three days before Christmas and stayed for two or three days. And our internal compliance person at the time was six months pregnant. So it was kind of a crazy time. And again, similar to you, Kevin, you know, it was like a year later they sent a notice of, yeah, they found some things, but I don't remember them being anything more than minor. Yeah, no, I don't think they were. And that's the hallmark, certainly at the SEC level of exams, is that advisors don't ever feel like there's any closure.

19:12 You'll get a deficiency letter and you'll respond to the deficiency letter. And unless they find something like either you totally missed what they were saying or your response was just so lame that you really will never hear from them again. But they'll file away the letter and the response. And the next time they come in, they will match what you're doing against what you said you were doing in your response to them. How often are they supposed to come in, both the state and the SEC? I don't think there's any supposed to. I know in Connecticut and Massachusetts, it's really, they like to come in every couple of years.

19:53 Connecticut is really, they're good about that. I mean, quote unquote, good about that. They do sort of keep to that timetable. The SEC, when you first become registered, will do a nice to meet you exam. It's a very simplified exam. The document request list is maybe a page and a half, two pages. And really, you should be able to produce, I would say, 70% of what they want within an hour. And we're talking compliance manual, code of ethics, an organizational chart. And that's the kind of exam that you want to excel in because it's the old adage, you get one chance to make a first impression.

20:38 If they're happy with you, if they see that you have your act together, if you've put a compliance program together, the way that they want you to, so in other words, do your risk assessment based on the risks that you find, then you draft your policies and procedures, and then you implement testing. And it's sort of a circular process. If they see that and that you're adhering to it, then they may not come in for five years or seven years. I mean, they're really overtaxed. And the examiners that came in and visited me, they said basically just that. I asked that question, and they said that they could be back in two years, or that I might not see them for 20 years.

21:24 So it really wasn't all that helpful, but I'm hoping that maybe it's the 20. Yeah, it might well be. I mean, they're not staffed well. I mean, it's just... I always thought that like advisors in the Western part of Massachusetts, got examined a lot less than in the Boston area just because of the travel time. And they can do more than one in a day. So I don't know if that still holds true though. Do you think that the priorities, I guess, specifically with the SEC change depending on who's in charge in Washington?

22:06 I think narrowly. I think maybe enforcement's gonna change. I think we've always seen some changes with ESG, environmental, social and governance. I think the SEC has taken kind of its... Pulled back from some of these rules. So that's something that's... I was gonna mention in the current topics or the topics of interest, but I don't know if that is still true. But I do think... I mean, it hasn't happened with the SEC, but you see with the IRS that they're cutting 6,000 people.

22:49 And just by a numbers game, it's gonna mean audits. Even if those weren't auditors, they were doing something that other people are now gonna have to do. It means that the number of audits is going to go down. I assume if there's gonna be cuts at the SEC or if there's a hiring freeze, it's gonna be the same sort of thing. It's gonna be the frontline people that are gonna get cut. Scott, how often... Obviously, I'll assume that most of your clients do very well with their examinations because you have them prepared. How often do you get called into service because somebody has been through an examination that was a little bit tougher for them and they have found that they have a lot to clean up and maybe some help with pulling together that response to the deficiency letter and making sure that if someone comes in to examine them again that they don't run into the same issues because the second time through, it'll be a larger problem for them?

23:55 Yeah, it happens. I mean, it's happened recently because they get such a large deficiency list that the examiners themselves suggest that maybe you need some outside help here. That you're not doing anything wrong. And that's always been the sort of, you know, where advisors throw their hands up that, you know, I take care of my clients. My clients are happy. You know, the rest of this is kind of BS and that's where mistakes are made. So it does happen. But let me clear up, disabuse you of, you know, yes, my clients tend to do very well but that does not mean they don't get deficiencies.

24:37 I mean, it's rare. I mean, I've had, I've gone through audits where, yeah, there's been one or two deficiencies and that is a unique thing. And it's really more to the client than to me because I can put a compliance program in place that is, you know, second to none, highly customized, meets the requirements of the advisor, meets all SEC requirements, is updated. But I'm not there doing it. And, you know, I can do their annual review where you test the adequacy and effectiveness and I can tell them, look, you're not doing these things. You need to do them.

25:18 But again, it really is a commitment on the advisor's part to do these things. Go ahead, Kev. Go ahead. I was gonna say, where do you find, you mentioned earlier that, you know, the tough thing is that for especially the smaller the advisor and maybe it has to do with their interest level and the compliance piece, but they're more focused on, they have to try to get their client work done first and also get the compliance work done as well. But you skip a couple days of compliance steps that you're supposed to be following based on your program, it becomes tough to catch back up.

25:59 What do you see is the typical deficiency that occurs the most in terms of trying to follow their own program? I think record keeping. Record keeping and documenting the output of their policies and procedures. Regulators are kind of odd in this way. If you're doing something and clearly doing it, but if you're not documenting it, you haven't done it in their eyes. Conversely, if you're putting down, like if you're keeping an Excel spreadsheet that you're doing this and that, but you're not actually doing it, they tend to believe you.

26:39 It's just very odd that way. So documentation is really ultra important when it comes to your compliance program. And, you know, that goes to then keeping books and records. So what happens is, you know, in a smaller firm, again, an SEC-registered firm, I mean, you gotta collect things quarterly for the Code of Ethics, a quarterly transaction report. You're supposed to review either the transaction report or your employee's brokerage statements, and you're supposed to document that you've done it. And, you know, I'm not obviously mentioning names, but, and this is what I hear, never with my clients, but, you know, they get notice of an audit and they're up late at night.

27:25 The two weeks they get to put documents together, you know, recreating two years worth of quarterly transaction reports. And, you know, they have a blue pen and a red pen and a pencil to make sure all the signatures don't look like they were done the same evening. That's where people tend to go astray. You had mentioned earlier about, you know, sort of hot topics and what the regulators are focusing on in 2025. What are some of those? So, you know, the SEC is very good in this way in that every year they release a exam priorities document, and it's pretty substantial.

28:12 It could be 40, 50, 60 pages. It's for broker dealers and investment advisors. And so, you know, record keeping is a big one, cybersecurity, and they've not changed over the years. Maybe they add one, take one away, but, you know, record keeping, cybersecurity has been a constant one over the last few years. Conflicts of interest, which is important. And, you know, when it comes to conflicts, the answer is disclosure. Every advisor has a conflict. If you're charging a fee, you have a conflict. And it all can be remedied with disclosure.

28:54 And, you know, I've always said that you can do, tongue in cheek, you can do anything you want to do, up to and including fraud, as long as you disclose it. I mean, you can front run your clients. And I've seen ADV2As where, you know, advisors will say, we trade ahead of our clients. And, you know, that's, you know, not necessarily ethical, or a lot of people won't feel that's ethical, but the SEC can't do anything about it if you've disclosed it in your ADV2A, because your client or potential client has been put on notice. So, you know, the flip side of conflicts is, you know, if you can't eliminate them, you disclose them.

29:36 That's why the ADV2A is so important. And, you know, I don't know, I hear every once in a while that, you know, advisors come back to me and say, oh, my client read the ADV2A and needs this explained to them. The ADV2A is supposed to be for your clients, but I look at, you know, compliance two ways. One is client facing, and one is regulator facing. And to me, the ADV2A serves two purposes, because, you know, as Kevin said, even in a state audit, they're going to pick through it line by line. And they're going to make sure that you're disclosing what you need to disclose and doing what you say you're doing in your ADV2A.

30:21 And if you're not, that's really problematic. Vendor due diligence is another area to make sure they have the protections that you're supposed to afford your clients when it comes to, you know, either cybersecurity or identity theft, things like that. You know, and this is a hard area for advisors. You know, when I put together a compliance manual, there's a vendor due diligence questionnaire. But either advisors have really big vendors, like Schwab is not going to complete your vendor due diligence questionnaire.

31:01 And, you know, sort of the more small and pop, mom and pop, maybe people that help with your computer systems are not going to do it because they're going to look at it and their eyes are going to, you know, roll back in their head. Well, and there are so many, every day there's new technology that comes out. It's interesting for us to use, you know, tax planning, income planning, whatever, insurance planning, whatever you want that makes our job easier. And yeah, they may fill it out and some may not. But how many of those do you find are noncompliant? About 99%. I mean, yeah, I mean, and, you know, it's always surprising when someone does it. But from a regulatory standpoint, you've kind of covered yourself if you reach out and do it.

31:45 And you, again, you should document that this was sent out, either retain the email or however, you know, you would document one of those things. But also what you want is in your vendor agreement, whether it's a contract or a purchase order, whatever it is, that there is some sort of confidentiality provision in there that covers you as well. The regulators are not unreasonable in that they understand, you know, if you're dealing with a Schwab or a Fidelity or, you know, places like that, you know, you can only do so much. You don't really have leverage to force them to do something and, you know, or you're going to walk away because what do they care?

32:26 You're going to walk away. So in the event of a data breach for somebody like that, how much of that falls back on us for responsibility? I think your responsibility is to make inquiries to see what was breached, if it did cover your client information, how they remedied it and, you know, what they're offering your clients because your clients are their clients too. So they have a direct relationship with them. So it is their responsibility. I think a wise thing is for you to act as a facilitator, that maybe the client is not going to understand what's going on or the remedies the client may have or the protections the clients may have.

33:10 I wouldn't want you to step in and kind of say, oh, you know, this is on us as well. So we're going to help you. I wouldn't want you to take that liability because it really isn't nor should it be your liability. What are regulators thinking about and doing about artificial intelligence? Well, that's one of the areas, you know, a hot topic area, artificial intelligence, something called predictive analytics. There was a rule proposed by the SEC, I think in 2023 that dealt with that, but it has not been enacted yet.

33:53 And their concern is that can the advisor detect and if it's there, eliminate any bias that could create skewed predictions that would favor their firm. That's their major concern. So I don't know why the rule has not been enacted, but that's not unusual. I mean, there's rules on the book that go back a dozen years that you would think would have been enacted like anti-money laundering. But so that's still pending. And the last exams that I've been through, it's not been an issue.

34:39 Maybe because the advisor is not using AI in their business, but it hasn't come up as an issue. And I've noticed that quite often that the SEC will issue these hot topics or exam priorities. And then when you have an exam, like they're never broached. I mean, record keeping is because that's part of everything. But some of these are not broached as part of the exam. The thing I tried not to do is, when I first got started and there was a proposed rule, whether at the state or the SEC level, and I rushed out and changed everyone's compliance manual and got it all set.

35:22 And I was going to show them that I was so ahead of the curve. And the rule was never enacted. I had to go back and claw everything back and re-edit everything. So they do give you plenty of time usually to make changes to your manual and your practices after they enact the rule itself. Sometimes it's 60 days. They just did one with anti-money laundering where it's 12 months for one group of advisors and 14 months for another group of advisors. And then once it's enacted and even past that time, it's sort of regulation-like. Like after they pass the compliance manual rule, it was years before they really started hammering clients, advisors on having off-the-shelf manuals.

36:12 They let you get away. There's some leeway right at the beginning. What's your view on texting with advisors and clients? That's a big one because advisors are concerned about it. First of all, these off-channel communications, surveillance of electronic communications. So advisors are slowly beginning to allow their employees, mostly investment advisor reps, to use texts and texting. But if they're doing that, they have to come up with some sort of solution like they did with email years ago where those texts are retained.

37:00 And if that's what you're doing, that's fine because it is just as an email and you'll need to reproduce those if requested during an exam. The problem is that if they're not allowing that and advisors are still using it or clients are texting the advisor, you really can't control that. And then it becomes kind of an unwieldy sort of thing. Take a screenshot of the text, paste it into an email, get back to the client and say, let's communicate through email. And no one wants to, first of all, put a roadblock in any communication with a client.

37:45 As a client, I would find that kind of annoying. So I think more and more, advisors are gonna be finding those solutions which are, I think, probably kind of pricey now as were email solutions back when email was first required to be retained. Are there any texting, archiving companies that you like that you would recommend? Yeah, not that I can... Yeah, there's none I can really think of offhand. I know clients have told me some and I can certainly get back to you on whether they like them or not. Right. I don't know how many there are where there's a lot of choices, but I don't get that granular with clients where I help them select those sort of things.

38:35 And a lot of times, it's the same company that's doing their email. They've just added that service. That was one of the items that was in my deficiency letter was texting. And what I had hoped was gonna be enough to satisfy the examiners was that I told them that I would occasionally receive text messages from clients, that what I would do is then go pivot to email, send them an email message saying that I received their text, kind of include in that email what they were asking or communicating about in the text and tell them that we were going to pick up that communication with this new email string and hope that that would be enough to cover it.

39:34 But as you said, that was not what they advised was to take a screenshot, to send that and store that somewhere in my own records that that was where it started from. And not consider what my method was to be satisfactory. So what I primarily did was tell my clients not to text, to go to the email and start from there with me. But they don't listen. Not always. Let's say not all of them. Yeah, Massachusetts, I have to say, is pretty aggressive with their enforcement of sort of cutting edge things because other states are not necessarily looking at that right now.

40:25 How many, what would you say, Scott? I mean, obviously small and midsize firms, right? A lot of these are established firms. I'm guessing because you did this for us is you're helping firms start to, you know, from the ground up too. Do you do a lot of that? And how cumbersome is that? What's coming? Yeah, I do. I mean, and then stay with them through their life cycle until they transition to SEC registration very often, or they stay state registered. And they're very happy doing that. And of course, now it's a little different over the last few years when the cutoff was 25 million as opposed to 100 million now.

41:10 Back then you had more advisory firms transitioning. What's counterintuitive is that it is far more difficult to register with the state than it is with the SEC. The SEC requires, they used to require two documents, the ADV-1, the ADV-2A, and now the form CRS, which is like a smaller version of the ADV-2A. The states don't require that. You'd file it. And rarely did you ever hear back with a comment or change this. In fact, in the last 20 years, I've only had that happen once. I've had firms become SEC registered in as little as a week, rarely more than 30 days, which is important.

41:55 Just let me say that if you're thinking of transitioning to SEC registration, that in the months leading up to it, you need to get your compliance program in place then. You can't file and then think you're gonna use that interim period to put your compliance program in place. And a good compliance program is gonna take you months to put into place because you may get registered in a week and then you're without a program. And the SEC has every right to go back to day one to look at what you're doing. Registering with the state, often the states require additional documents. They wanna see your advisory agreements. Sometimes you have to do an attestation that you've not been providing advisory services as an unregistered advisor.

42:42 There could be financial statements that you have to provide. So there's a whole litany of additional documents. And then the state, much to their credit, actually reads the documents and they come back with comments. And then you have to respond to those comments and then they will come back to them with more comments. So a state registration is gonna look more like three months to six months. I mean, it happens quicker if everything's perfect and how they want it. But more often than not, it drags on. And also it's a timing thing. If they get four other applications that day and yours is the fifth, yours is gonna go on the bottom of the pile and they have limited resources.

43:26 Some states have one person looking at these things. So it really can drag on as opposed to SEC. Three to six months, Kevin's gonna say, hold my beer. Kevin and I both sought to register our firms in Massachusetts in 2020, right around the same time. I think you're right. I think it took us three months, three or four back and forth with clarify this type of a thing. We're fee only, right? We're not charging commissions. We're not selling products. So I think that's the simplest process, right? And that still took three months. Kevin can tell you how long it took. And he has a slightly different fee structure too, which I'm guessing plays into how long this takes.

44:07 That was a big issue with mine was I had started off with a kind of two options. I had, if clients wanted investment management only, I had a typical AUM fee structure. That was simple. On the financial planning side of things, I was offering a fee structure that was based off of adjusted gross income and a percentage of net worth. And Massachusetts hated that. They could not, we just weren't getting anywhere. And I was working with compliance group that I should have been working with you, Scott.

44:48 I think you would have helped it. They were providing little help with, I thought that they would be helping to, I don't know if negotiate the right term or not, but to help me kind of get across the finish line with Massachusetts. And they were actually really just relaying information from Massachusetts back to me. And then my response is back to Massachusetts and we weren't getting anywhere, but they really did not like anything outside of AUM. It felt to me to a point where I'm still, I still offer that fee structure, but I am thinking about and likely to be changing just to a straight AUM or fixed fee and get rid of the fee structure based on income and net worth, because I just don't want the headache again going forward.

45:41 Yeah, because you're going to relive it every time they come in, because it's probably going to be different people. They're not going to understand it. And it is, regulators don't like anything that doesn't fit in the box. And that certainly is a fee structure that is unique. But are more, I know larger companies that do that now, they base their fee on net worth or whatever it is and not necessarily assets that you have. So they must, I mean, they must have seen it now a bunch of times and are becoming somewhat okay with it. Well, don't forget when we're talking state, you're topping out at a hundred million. They may not be the companies doing that.

46:24 The SEC may have the sophistication to understand it and just something they've seen more often. I don't think, I don't have any clients that do it based on that. But I mean, that doesn't mean it's not going on. That was the piece of it that caught me off guard is I knew other advisors that had a similar structure, even advisors that had gotten through registration in Massachusetts without the headache. And I don't know if I had someone that was new to the Mass Securities Division that maybe had not seen it or maybe was trying to kind of prove themselves, but it was tough.

47:04 A lot of the holdup came to their questioning of, how do you feel like that quantifies the value that you're providing? And I didn't have a great answer to it, but I also said, if I'm doing AUM, how does that translate to the value I'm providing? I always said, if someone has $2 million under management and $1 million and I'm providing planning for that, am I necessarily providing twice as much work to the $2 million client? And not necessarily, it can go up and down, but they wanted almost like a straight line to every dollar of net worth had to translate to a quarter hour of financial planning work somehow, or they weren't going to accept it.

47:58 So eventually I got up and running, which made me happy, but it wasn't as easy as Brad's journey. How long did it take you? Did it take a year? It was, yeah, it was over nine months. It was getting to the point where my wife was getting uncomfortable with my lack of income coming in. So yeah, longer than I wanted. Yeah, that's interesting, because to me, that's a point worth arguing. And you're allowed, you run a business, you're allowed to do as you see fit, again, as long as you disclose it. I don't understand why it's in their purview to make any judgment on how you charge advisory fees.

48:40 So I wish it was me. I would welcome an argument like that. And the thing to understand about regulators, and they're probably hopefully not listening, both at the SEC and the state level, is they're not always right. And they don't always know the law. Sometimes it's quite surprising. I've had very heated arguments, spirited arguments with SEC advisors over very simple points of law, like not even questionable things. And they believe something totally different. And the problem is now you're caught because they're not precedent. You can't base what you do on what something an examiner says, yet you're caught in that exam.

49:26 So it's almost like you have to make changes. And then once the exam's over, go back to what you were doing. It's quite tricky in that way. I know you do some compliance seminars for Raymond James, for Schwab, for things like that. What topics? Things we talked about or things outside of this? Yeah, it's been a while now. When new custody rule came into place and compliance, and just very straightforward, a lot of the things that we spoke about, but much more narrow. With Schwab, you get those, I don't know if it comes out monthly, but the compliance newsletter or something. So it would be like on that, I would write the newsletter and then the seminar or the webinar would be on that topic.

50:11 Is there anything Kevin and I haven't asked you that we should have, that we should know? Yeah, I think maybe some takeaways for our advisors is the buzzword now in compliance is proactive, like be proactive. Find the problems before the regulators find them. And there's different ways of doing that. You can do your compliance testing. I mean, that is the gold standard for finding out if your policies and procedures are working as you think they are. You can do a mock audit or a formal compliance review. One thing I suggest is create a requirements chart.

50:53 I do this for my SEC clients because this is what the SEC does. They'll go through your compliance manual and look for every requirement that your manual says you're doing. And then they'll challenge you on some of them, are you doing this? Even if it's not a rule or a best practice, if it's in your manual, you better be doing it. So if you create a requirements chart and once a year you go through it and say, yeah, we're doing this, we're not doing this. With the not doing this ones, why aren't you doing it? Is it something that you don't need in there? If it is, get rid of it. If it's something that needs to be there, that it's pretty much a hard and fast rule, you better figure out a way to do it or to do it better.

51:42 And then two things I mentioned earlier, document everything and disclose. Can't go wrong by over disclosing. Thank you. And uscomplianceconsultants.com if somebody wants to get in touch with you. Yes. You still have capacity. Still have capacity, yes. Fantastic. Scott, thanks for joining us on the Wicked Pista podcast. Again, to find out more about Scott Gottlieb and US Compliance Consultants, you can visit uscomplianceconsultants .com and for more info on our Financial Planning Association, you can go to fpanewengland.org. If you'd like to learn more about the Financial Planning Association or FPA New England, visit our websites, financialplanningassociation.org for the National Association or fpanewengland.org.

52:30 You can learn more about our organization and all the upcoming chapter events. We hope you'll join. That's fpanewengland.org. Until next time, have a wicked good day.