Name: Smarter Annual Reviews: How Firms Can Reduce Manual Work and Strengthen Compliance
Uploaded: 2025-09-10T15:46:24.113Z
Duration: 30 min 12 s
Description: Smarter Annual Reviews: How Firms Can Reduce Manual Work and Strengthen Compliance

Transcript for "Smarter Annual Reviews: How Firms Can Reduce Manual Work and Strengthen Compliance": Alright. Hi, everyone, and welcome to today's webinar, Smarter Annual Reviews, How Firms Can Reduce Manual Work and Strengthen Compliance. My name is Madelyn Jacobs, and I'll be moderating today's event. I have a few housekeeping items to cover before we get started. On the right side of your screen, you'll see a few different sections you can navigate between. There is a Q and A tab where you may submit questions to our speaker throughout the presentation. After the webinar, a Comply staff member will reach out to you with answers to any questions you submit. The docs tab is where you can access the slides from today's presentation along with the related materials and content for this webinar. A recording will be sent to you in twenty four hours. The polls tab is where poll questions will appear when they're launched so you can vote. A notification will appear on your screen as the polls are opened. And lastly, a survey will open up at the end of the presentation. Please share your feedback so we can continue to improve Comply's webinar content. If you have any questions after the session, please feel free to email communications@comply.com, and a member of our team will be in touch. Alright. I think we are ready to begin. I will now give the floor to our speaker for today's webinar, Abdisa Gamichu, one of our expert compliance consultants here at Comply. Abdisa, over to you. Thanks, Maddie, and, welcome, everyone. So, yeah, my name is Abhisheh. I'm a compliance consultant here with Comply, working on our, comprehensive consulting team. And, you you know, one of the ways I collaborate with our investment adviser clients is helping out with the annual review process. You know, Comply actually has a really, strong streamlined way of, helping advisers comply with the rule. So, I'm I'm really excited to be, speaking about this topic today. It is such a critical process to nail down because, you know, in addition to having the rule two zero six four seven requirement, it just really helps RIAs have, an ongoing relationship with their policies and procedures and compliance in general. So, you know, we we like to say that, policies and procedures manuals are living, breathing documents, and having a strong process in place here really fortifies that concept. And at the end of the at the end of the day, that's what, regulators are really looking for is a culture of compliance. So, today, we'll do a brief overview of rule two zero six four seven, get into a proper, you know, annual review discussion and, touch on how Comply can help your firm with this, as well as other compliance items. The o overview and requirements of rule two zero six four seven, otherwise known as the compliance rule. So what's the origin of the rule? This rule went into effect in 02/2004, and, it was part of a broader SEC initiative in the early two thousands to enhance compliance and improve investor protection, in in response to a series of corporate and financial scandals. You know, it's been over twenty years at this point, which is kind of crazy, but, naturally, I'm sure most of us remember Enron. I'm based in Houston, so that obviously hit close to home for many of us here. But, essentially, a number of rules and laws, related to governance like Sarbanes Oxley, came down in that period to stabilize and, you know, reduce the risk of, systemic, like, malfeasance. So in that vein, rule two zero six four seven or the compliance rule, was designed to put controls in place for investment advisers. So what are these controls? Here we go. A, adopt and implement written policies and procedures, b, no less than annually review the adequacy of your policies and procedures and their effectiveness, the effectiveness of their implementation, and then, c, designate an individual responsible for administering your policies and procedures. So we'll quickly discuss a and c, but then, the rest of the time, we'll focus on the annual review element. So your policy and procedure manual or some firms call it a compliance manual is the governing document detailing your compliance program. You know, after the ADV, it's probably your most important document. It's definitely your most important internal document. These are often 100 plus page documents explicitly stating how the firm handles key investment advisory functions, you know, such as trading, account management, billing, etcetera. But, also the firm's procedures for all obligations covered in the 40 act and all the associated rules and amendments, such as marketing rule, custody, things like that. So like I said before, this is meant to be a living, breathing document that, that develops and updates over the life of the firm. And, naturally, that annual review process that we talk that we'll talk about, is is critical in that. So I'm sure many of the folks viewing this webinar are compliance officers, so we all know what goes into that. A CCO has to do his or her best to have a strong voice within the firm because if they can't develop a culture of compliance, then the annual review will be difficult to conduct effectively and will likely result in identifying open areas of compliance risks for the firm. So now we have a polling question. When was the last time you updated your policies and procedures? So '1 or, 2025, 2024, prior to 2024, I don't remember, or NA. You know, if if you don't remember, then that's definitely a you know, let let this be your cue to go in and and do that, do your annual review and update your policies and procedures because, you know, there's there's a reason to update your policies and procedures every year. So, you know, if you've done it already this year, you're in a good spot. If you did it last year, you know, there's there's probably some areas that you would, that you would probably want to update. And, if you haven't done it prior to last year, then there's definitely some issues that or some some areas that you want to address and update in your policies and procedures. So we'll get into, conducting your annual review here. So, you can see here that Comply's software has a built in annual review tool. It really streamlines the process for investment advisers, you know, rather than doing things manually and just keeping spreadsheets and building out archaic word documents, you can essentially complete your annual review through our tool and generate a clean report. This is something that we typically work with our investment adviser clients on a periodic basis. You know, you don't wanna do this all in one fell swoop because I mean, to do it effectively, you really need to be conducting an ongoing review, like, throughout the course of the year. You can't just allocate some time in August and say, okay. Today is the day that we're gonna do the annual review or even, like, this week is gonna be the week that we do the annual review. You can do that, but you're not really gonna be conducting an effective review. So I'm gonna cover, these 10 elements from a fairly high level. You know, each of these topics could have their own, focused presentation, and I'm sure we actually have, you know, some previous webinars and blog posts on a number of these topics if you look at our, comply resources on our website. But I'm just gonna cover how firms should be, reviewing these elements and documenting that review. So compliance program and risk is gonna be the big one. These two terms go hand in hand here. Compliance officers must evaluate the risk of a number of areas relevant to the firm, and all of those areas should be addressed within the compliance program. And, and and they should be measuring the effectiveness of the compliance program and the policies and procedures. And to do that, the risk evaluation needs to be pretty granular. It also needs to be as accurate as possible. During audits, the SEC is gonna be owning in on, you know, how effective the implementation of your policies and procedures are. So if the risk assessment is sloppy or done in a haphazard way, that's gonna alert them to dive into your program and your processes. So, essentially, your risk assessment is gonna cover pretty much any procedure you have in place. So it will include things like marketing, custody, filings, disclosures, billing, soft dollars, compensation, suitability, trading processes, nonpublic information. You know? I mean, keep going. Like, really, everything under the umbrella of what's covered in in compliant code of ethics, supervision. You know? And you're you're really looking at any potential gaps in your processes, but you're also keeping an eye out for conflicts of interest. Right? Like, what conflicts of interest may be present, in the way your firm is getting compensated on some of the client accounts? And, what is the risk of that conflict not getting disclosed or preventing the firm from meeting its fine, fiduciary duty. You know, you need to get as granular as possible here. Also involved in this area, of your review is training. So you need to have an annual compliance training meeting, and ensure that all registered individuals as well as, access persons attend. So this is a a part of supervision is is making sure that everyone has has the proper training and documenting it. On providing investment advice, you know, how do you meet your annual review requirement here? Well, you obviously wanna have an ongoing process for reviewing client billing, investment advisory agreements, and suitability documentation like IPSs. But you also want to assess your policies and procedures here. Are you reviewing these items often enough considering the volume of accounts you have? Are there systems in place to catch any potential issues or conflicts of interest? The these are the types of questions that that you should be pondering here. Now trading can be pretty simple to review if your firm is fairly vanilla. I mean, time time intensive, but still, like, pretty, you know, it it it follows the same process every time, but it can be kind of tricky if not. So, again, you're looking to make sure there are no conflicts of interest, or if there are, they are appropriate appropriately addressed by your policies. You wanna make sure, you're reviewing best execution on an annual basis. I know, for firms using Schwab as their custodian, you can, request a special report. I think they call it a post trade quality execution report. That gives a number of metrics that should help satisfy this review. But but, anyway, I would make sure you have a good process in place here regardless of who your custodians are and that you are continuing to document your review. Similarly with trade errors, you know, ensure that you have an effective policy in place to address, your process regarding potential trade errors because while they may not happen often, they do happen, and they need to be addressed as soon as possible to make sure that, the the at the end of the day, like, you wanna make sure that your clients aren't, being potentially harmed. So review your code of ethics. You definitely want to make sure that you're minimizing your risk of failing to meet your fiduciary duty. You know, make sure your system of reviewing quarterly transactions reports, is appropriate and, you know, you're getting those annual holding reports, from from all the individuals at your firm, you know, nothing can be slipping through the cracks with potential, securities violations like front running. I mean, and and this doesn't this doesn't just apply to IARs. Right? Access persons are included in this requirement. So, you wanna make sure that you have a robust a robust process in place here. Now safeguarding client assets is one of those topics that is consistently covered because nobody wants to violate the custody rule by mistake. You know, this is, often an area that really differs from firm to firm because of the various nuances and gray areas of what triggers custody. You know, I find it helpful to include background of the rule, you know, in the compliance manual for for certain items, and custody is definitely one of those where you wanna define custody and, of course, have explicit processes around custody. Like, if you claim indirect custody and meet the seven prongs to be exempt from a surprise audit, really dig into how you are meeting that exemption and document everything for your review. Now with the new marketing rule, advisors are, you know, starting to adopt, much more or, you know, have already adopted, much more extensive policies and procedures to keep up with the requirements of the rule. You know, naturally, performance advertising tends to be a tricky one here. You really need to have a good procedure in place to use performance advertising, particularly hypothetical performance because of how strict the rule is regarding hypothetical performance. You know, for your annual review, in addition to reviewing your policy on performance advertising and making sure that it's being followed to the letter, it would be good to review your marketing disclosures. You know, this includes disclosures on social media, on your website, anything that would be, considered advertising, podcasts as well. You know, make sure those disclosures are robust and see if anything needs to be updated. Yeah. That's part of what your annual review is as well. Like, what what do we have out there, and is it accurate? And let's make sure that it is appropriate to what is being covered. Similarly, you wanna review your solicitor relationships and the policies and procedures you have in place there and ensure that a, solicitor disclosure is being sent to clients if you use solicitors. You know, make make sure that, that's being updated in your ADV as well. So books and records review somewhat overlaps with, with the rest of the annual review process naturally because, there's a lot of records to, the items that are being reviewed, like, with trading and, with providing investment advice. So, but but it's good to test your policies and procedures here by by making sure that you're retaining client and firm records as well, for the appropriate amount of time and then being disposed of in the appropriate way as described by your policy. Similarly, you know, you wanna ensure that client complaints are being, maintained and are being addressed and resolved. Filings review and, client delivery. You know, make sure your process for completing your annual ADV amendment filing is effective and designed to get done to file in time. You know, as you know, the annual updating amendment is due ninety days after your, fiscal year end and must be delivered to clients, one hundred twenty days after fiscal year end. So, you know, for most firms, the due dates are March 31 to file and then April 30 to deliver. And, you know, because the the privacy policy must be delivered annually as well, those firms will deliver the two a and the privacy policy together. You know, if that's how you do it, great. But regardless, you want to make sure that you're meeting the delivery requirement and have a good process in place there. So it's helpful to have alerts in place to remind the individuals responsible for putting, everything together for the filings and get it all submitted on time. Same thing, for some of the other periodic filings, like the quarterly 13 f and, for institutional managers and the annual 13 h for large traders. I mean, this is another area where Comply can help. You know, all of our clients have a compliance calendar that we work with them on, the reminders for when, some of these filings are due ahead of time so that everything gets gets put together and and the filing is done timely. Cybersecurity policy requirements have been changing, and will likely continue to change, with the new reg s b rule. You know, compliance states for larger firms, So over 1 and a half billion will be December 3, and all other SCC registered advisers have until June 3. You know, when you're doing your annual review this year, that's a great time to consider implementing your new policies related to, an incident response program or and oversight of vendors who have customer data. You know, better due diligence is an area where the SEC is also honing in on to make sure advisors are actually aware of, those vendors' privacy policies and, you know, how they safeguard client data. And and, you know, the SOC one and SOC two reporting, regarding the vendor's controls are, you know, an area of that due diligence. So DOL rollovers is an area where, you really want to make sure you have solid procedures in place. You wanna make sure that you provide the right disclosures to retirement investors regarding the firm's fiduciary duty as well as a comparison of the old plan versus the new plan, you know, depending on on what the recommendation is. And, you wanna have a good procedure in place for the annual retrospective review because regulators are sensitive to this being done appropriately by advisers. Alright. We, have another poll question here. So, which of the highlighted key areas of focus for your annual review present the largest challenges for your firm? We have compliance program and risk, safeguarding advisory client assets, code of ethics, marketing, advertising review, privacy and security, or other. You know, I would say for the majority of the clients that I work with, you know, compliance program and risk just because it's, it encompasses so much. And that risk assessment is really, really critical to identify the areas that need a little bit more attention from the compliance officer and, you know, hopefully, the compliance team. It it's there's there's just so much involved there in doing it in an effective way and, ensuring that the firm is putting its best foot forward when it comes to managing compliance, just broadly managing compliance, and not leaving itself exposed to regulatory risk. But, you know, a handful of these areas are, you know, firms are, you know, particularly sensitive to marketing and advertising review because the new SEC rule is, you know, pretty strict. A a lot of firms don't even, do performance advertising because of the risks involved with not, not managing that in an appropriate way. You know, a bunch of additional requirements are related to that, including disclosures and, you know, reporting the right amount of, performance advertising. You know, the hypothetical, it gets it gets really tricky there. So, you you know, a a number of these areas could, impact different firms in different ways. So how can Comply help? In addition to a number of resources that we have on our website, that provide guidance, I can't really understate how our software streamlines the process of the annual review. Our risk assessment tool catalogs your notes, on over a 160 distinct categories related to over 20 areas that RIA should be assessing as part of their policies and procedures. And then it feeds that, that information into the annual review tool. So low, medium, high risks are color coded, as well for firms to look back and dive into the higher risk items to contemplate, you know, contemplate, you know, how to reduce the risk by updating their policies. And as a member of our comprehensive consulting team, one of my favorite parts of the job, honestly, is working together with IA's on articulating the notes and potentially, potentially, you know, suggesting best practices to lower the risk of those items. So here you'll see, you know, additional ways that Comply works with financial services firms. Obviously, today, we highlighted, the annual review and risk assessment. You know, I talked earlier about compliance training. We help out with that a lot as well. You know, our software comes with a a number of tools that are useful in addition to annual review and risk assessment, like employee trade monitoring. And, of course, we assist with filings and state and SEC registration. So, you know, we're here to help. We we love providing information to, to the community at large, but we do a number of specific things, on our consulting team to really help strengthen your compliance practices and try to automate as much of it as possible. And here we have a a couple of upcoming education events. So, coming up soon actually is, you know, we we talked a little bit about, Reg SP. So we'll dive into a full two hour, presentation on, you know, everything, all all of the considerations for for Reg SP coming up for firms because the the compliance date is approaching fast. And then we'll also have, a couple weeks later, managing technology for traditional and off channel communication. You know, off channel communication is a pretty big hot button item for the SEC over the last year or two years, where they're really, really cracking down on, you know, making sure that any communication with clients is being archived and reducing the use of off channel communication. So that'll be a pretty good one. And, and then we have our Comply Connect for twenty twenty five, our in person conference over, October in Miami Beach. Great. Thank you everyone for attending today's webinar, and thank you, Aviso, for such a great session. Before you go, please feel free to share your feedback on the webinar by completing the survey that is now open. Our team will reach out with answers to any Q and A questions that were submitted during this webinar. Don't forget to check out the docs tab on the right to access the slides, related content, and more. And if you have any questions after the session, please feel free to email communications@comply.com, and a member of our team will be in touch. And, as a final reminder, a recording of today's webinar will be sent to you within twenty four hours. Alright, that concludes today's presentation. Thank you so much for your attendance and participation, and thanks again, Abhiza, for being our speaker for this informative webinar. Have a great day.