Want to survive an SEC audit? Go paperless

With the commission ramping up adviser examinations in the next year, advisers should reconsider their paper offices

Apr 22, 2015 @ 1:48 pm

By Alessandra Malito

Going paperless at the office is more than a nod to environmental virtuousness. It just might give advisers a leg up on SEC compliance exams.

Given the Securities and Exchange Commission's plan to bolster adviser oversight in the years ahead, now might be the time to switch to a computer-based filing system to store important client data and documents needed to run a practice.

That's because practices that are paperless typically get through an SEC exam — which can last weeks or months — much quicker.

“It significantly reduces time,” said Tom Embrogno, chief growth officer at Docupace Technologies, which provides advisers and broker-dealers with SEC-compliant electronic solutions. “What would have taken you two to three weeks to go through with file cabinets and taking out staples and copying things, you can do in two to three seconds.”

That was the case for Valerie Chaille, president and adviser at SummitView Financial, a registered investment advisory firm in Indianapolis.

Ms. Chaille has been audited twice: once while working at a paper-based office for a broker-dealer and again at the paperless practice she founded in 2007.

The paperless process was significantly smoother.


“I basically set up the electronic files that were ordered and structured the way paper files needed to be set up,” Ms. Chaille said. “Once I explained how the electronic files were set up, they easily found what they were looking for and commented that our notes and files were thorough and well organized.”

The paperless movement already has a devoted following among advisers and other financial services professionals.

“It's the only way to be,” Debbie Kagawa, chief financial officer of Capital Resources & Insurance, said. “Anyone who is still doing paper is losing money. It costs time, it costs money, it is a risk in terms of privacy.”

Ms. Kagawa created a naming system for her documents. She said it's also important to put data in a safe location specifically designed to hold sensitive information.

Ultimately, being paperless makes the SEC examination a breeze.

“It's perfect for that,” Ms. Kagawa said.

Once the files are copied, advisers can put them in any format the SEC may want — usually on a DVD, Ms. Kagawa said — and the examination will continue thereafter.

“It's no longer a choice,” she added. “You have to be digital in this day and age.”


The SEC only examined 10% of nearly 12,000 registered investment advisers it oversaw in fiscal year 2014.

In an effort to administer more exams, the commission noted in its congressional budget that it seeks to hire 225 more staff members in fiscal year 2016 that would directly affect the number of exams taking place.


How close are you to a paperless office?

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