SEC examiners 'are gunning for you'

Make no bones about it -- the Securities and Exchange Commission is “coming to get you," securities lawyer Thomas Giachetti told financial advisers at the Schwab Impact conference Monday. He used to be able to make many adviser exam issues go away with a phone call, but "I can't do it any more." The SEC has hired more and better professional examiners and any new registrants or any adviser who hasn't been vetted in the last 10 years "will be getting a visit this year," Mr. Giachetti said. Advisers should be especially careful about how they report their assets under management and make sure they only count assets that they can trade. "If you are puffing it up big, you're going to get a letter," from the SEC, he said. He also recommended that advisers be especially careful about reporting composite performance, suggesting they do it in a face-to-face meeting with clients instead of having a published document. Custody is also an area ripe for concern with the SEC, which tightened its rules for advisers in this area six years ago. Advisers who hold assets in custody are required to undergo a surprise annual exam by an outside accountant. Advisers serving as trustees, those who can write checks for clients, those with a client's credit card information and authority to use it and advisers who have client passwords and the ability to electronically move funds from those accounts all have custody, Mr. Giachetti said. Advisers also should be able to show examiners exactly how they are performing due diligence on investments and how they monitor them, he said. Be especially careful with private funds, Mr. Giachetti said. "Do not misconstrue the message of this SEC," he said. "There is no 'do better next time.' ... They are gunning for you."