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Say Goodbye to Paper-Based Compliance Practices

This tool can give financial advisors peace of mind upon an impending regulatory examination.

Bill Winterberg, 09/08/2011

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Few developments cause higher levels of anxiety and concern among financial advisors than the notice of an impending regulatory examination. Whether it is a visit from the SEC, FINRA, or a parent broker-dealer, advisors are justifiably apprehensive regarding the adequacy of their internal compliance procedures and controls.

Any tool that can organize, systematize, and automate aspects of regulatory compliance is a welcome addition to an advisor's technology architecture. One suite of tools comes from Compliance11, a Chicago-based provider of compliance automation software that is embracing technology to simplify an advisor's compliance obligations.

Overview
Compliance11 is a Web-based application with four modules targeted to specific areas of compliance. Roughly 400 firms representing more than 100,000 users currently use the application. The Personal Trading module streamlines the supervision of employee trading activity by facilitating trade preclearance and transaction review. Affirmations and Disclosures helps consolidate the process of gathering employees' acknowledgement that they've read and agreed to abide by the company's policies and procedures.

The Gifts, Entertainment, and Contributions module allows employees to log on to a user-friendly website to enter information about gifts, entertainment, and political contributions. Finally, Case Management provides a consolidated system to track required compliance activities, such as reviewing marketing and advertising materials, documenting client complaints, and preparing for upcoming regulatory filing deadlines.

In this month's column, I'll highlight the Personal Trading module, as its application of technology to compliance practices is best-positioned to save advisors considerable time and money.

Supervising Trading
Supervising employee trading activity can be tedious, time-consuming, and often dependent on manual, paper-based processes. Under Rule 204A-1 of the Investment Advisers Act of 1940, an investment advisor's code of ethics must require that all access persons submit reports of their personal securities transactions to the chief compliance officer on a quarterly basis. Reports of an access person's current securities holdings are required at least annually.

Typically, firms implement personal trading supervision in one of two ways. First, the firm can require all of its employees to move personal brokerage and retirement accounts to a specific custodian or broker-dealer. Doing so enables the firm to view transactions and holding information in employee accounts just as they do for clients of the firm. But forcing account transfers can cause dissatisfaction among employees as the move might result in higher transaction fees, restricted access to certain mutual fund families, or even generate realized capital gains for funds that must be sold prior to the transfer.

Bill Winterberg, CFP, is a technology and operations consultant to independent financial advisors. His comments on technology have been featured in a variety of financial industry publications. You can view more information about Bill and see his schedule of upcoming speaking engagements at his Web site, FPPad.com. The author is a freelance contributor to MorningstarAdvisor.com. The views expressed in this article may or may not reflect the views of Morningstar.
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